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Food inflation snaps 3-week easing trend

Food inflation snaps 3-week easing trend
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First Published: Thu, Apr 21 2011. 03 43 PM IST
Updated: Thu, Apr 21 2011. 03 43 PM IST
New Delhi: India’s annual food inflation snapped a three-week easing trend on 9 April, while fuel inflation also quickened, raising the odds for an aggressive rate hike by the Reserve Bank of India (RBI) next month.
The food price index in the year to 9 April rose 8.74% on higher prices of potatoes and fruits, while higher industrial fuel prices mirroring global crude prices pushed up fuel inflation to 13.05% in the same period.
This compared with an 8.28% rise in the food price index and a 12.97% rise in the fuel price index in the prior week.
“This (the price) increases the odds that the RBI will hike rates by 50 bps on 3 May,” said Dariusz Kowalczyk, a senior economist and strategist at Credit Agricole CIB in Hong Kong.
“We believe that it is very important for the central bank to send a decisive signal that they are determined to control price pressures.”
The 10-year 7.80% 2021 bond rose 1 basis point (bp) to 8.05% after the data release.
India’s headline inflation in March unexpectedly spurted to 8.98% reinforcing assumptions that inflationary pressures have become entrenched in the economy.
The RBI is widely expected to raise rates by 25 basis points, but after the March inflation numbers surprised the markets on the upside, some analysts are talking about the possibility of a 50 basis points hike at the annual policy review on3 May.
The primary articles index rose 11.96% in the year to April 9 compared with an 11.40% rise in the prior week.
Continuing unrest in the Middle East has seen crude prices touching the $124 per barrel mark on Thursday.
Alarmed by the high headline inflation the finance ministry’s chief economic adviser Kaushik Basu said on Tuesday that the high powered committee on inflation will soon meet to finalise new anti-inflation measures which would be ”different”.
Basu said that he expected the headline inflation to be below 8% in April, but his views have been met with scepticism as eight rate hikes by the central bank since March 2010 have failed to rein in inflation.
However, prediction of normal monsoon rains, the first official forecast for 2011, is expected to boost agricultural output and bring relief to Asia’s third-largest economy in its battle against high food prices.
Several analysts have cut their growth forecasts for the economy in the fiscal year that started this month, citing the risks from inflation, especially as rising global oil and commodity prices begin to hit the manufacturing sector.
Goldman Sachs has revised its headline inflation forecast for India to 7.5% from 6.7% for this fiscal year and reduced its GDP growth forecast to 7.8% from 8.7% previously citing inflationary pressures.
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First Published: Thu, Apr 21 2011. 03 43 PM IST
More Topics: India | Economy | Inflation | Food | Fuel |