New Delhi: India’s food inflation continued to ease in April, but fuel inflation was steady at its high level, keeping up pressure on headline inflation that could prompt further monetary tightening by the central bank.
The food price index rose 16.04% in the 12 months to 24 April, slower than an annual rise of 16.61% in the previous week, government data showed on Thursday. The fuel price index rose an annual 12.69%, same as the week ago.
The government hopes that increased supply of the winter crop in the market and a forecast of normal monsoon rains would bring down food prices and cool wholesale price inflation, which is currently at 9.9 percent.
But policymakers and central bankers have worried about emerging demand-side pressures - highlighted by persistently high fuel inflation and rising manufacturing inflation - which will make their task of fighting inflation more difficult.
On Thursday, the finance ministry’s chief economic adviser Kaushik Basu said headline inflation was expected to be in the 6-7% range within three months. The figure is higher than the central bank’s forecast of 5.5% as at end-March 2011.
The Reserve Bank of India (RBI) has said it prefers “baby steps” to normalise monetary policy, but analysts say high inflation could force Governor Duvvuri Subbarao to hike rates swiftly and sharply.
The benchmark 10-year bond yield was trading a touch below the 8% level.
Markets expect a 25 basis points hike when the RBI reviews monetary policy in July, following up on two hikes in March and April by a total of 50 basis points.