New Delhi: The recent spurt in food inflation is due to supply constraints, but prices should cool by February, deputy chairman of Planning Commission Montek Singh Ahluwalia said on Friday.
India’s annual food inflation accelerated for the fifth straight week in late-December to the highest in more than a year, reinforcing fears it has spilt over to broader prices and cementing expectations of a January interest rate hike.
The food price index rose 18.3% in the year to 25 December compared with 14.4% rise in the previous week. Onion prices, a key food staple for Indian families, rose over 23% over the week to 25 December.
“The current spike in food inflation that you are seeing should be over by February,” Ahluwalia told Reuters in an interview.
Food articles have a weight of 14.34% in the wholesale price index, India’s most widely watched gauge of inflation.
Headline inflation had eased to a 12-month-low of 7.48% in November after hitting 8.58% in October.
India’s central bank expects the headline inflation to ease to 5.5% by March, but Ahluwalia expects the reading for March to be around 7%.
The Reserve Bank of India, which raised interest rates six times in 2010, is expected to increase rates by at least 25 basis points on 25 January, a Reuters poll showed on Wednesday. Analysts forecast rates to rise by 75 basis points in 2011.