New Delhi: India’s food inflation eased and fuel prices were flat in early July, but the data little changed forecasts for the Reserve Bank of India (RBI) to hike rates a second time in the month when it reviews policy on Tuesday as inflationary pressures persist.
The food price index rose 12.47% in the year to 10 July, against its 12.81% reading in the previous week. Food price inflation eased on lower prices of wheat, pulses and vegetables, government data showed on Thursday.
The fuel price index rose an annual 14.27%, while the primary articles index was up 16.48%, compared with the previous week’s reading of 16.25%.
The yield on the 10-year benchmark bond rose 1 basis point to 7.66% after the data. It had ended at 7.69% on Wednesday.
Last week, a top government adviser said India’s non-food manufacturing inflation was picking up, in a sign that broader inflation was becoming demand-driven, keeping pressure on the central bank to tighten its monetary policy.
Non-food manufacturing inflation in June was 8.6%, higher than 6.6% in the previous month.
The RBI is widely expected to raise key policy rates by another 25 bps in its policy review on Tuesday, after three similar rate hikes this year, including on 2 July.
Analysts say the sharp revisions in the headline inflation WPI number in March and April have maintained the case for further monetary tightening even after Tuesday’s policy review.
The government is pinning its hopes on a normal monsoon and a good summer harvest this year to cool down food prices, which it hopes will ease headline inflation as well.
Monsoon rains were 16% below normal from 1 June through last week, but heavy showers in the past two days have reduced the seasonal deficit by one percentage point to 15%, a top forecaster said on Wednesday.
July is the most important month for sowing key crops such as soybean, rice, cotton, cane and corn.
India’s top bureaucrat, cabinet secretary KM Chandrasekhar, on Tuesday reiterated New Delhi’s view that headline inflation would likely ease to 5% to 6% by December.