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Food price inflation slows to four-month low of 16.3%

Food price inflation slows to four-month low of 16.3%
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First Published: Thu, Mar 18 2010. 10 30 PM IST

Rising concern: Food price inflation was at 17.81% in the week ended 27 February. Indranil Bhoumik / Mint
Rising concern: Food price inflation was at 17.81% in the week ended 27 February. Indranil Bhoumik / Mint
Updated: Thu, Mar 18 2010. 10 30 PM IST
New Delhi: India’s food price inflation slowed to a four-month low as bigger winter crops boosted supplies of sugar and wheat.
An index measuring the wholesale prices of lentils, rice, vegetables and other food articles compiled by the commerce ministry rose 16.3% in the week ended 6 March from a year earlier, after a 17.81% gain the previous week, according to a statement in New Delhi on Thursday.
The decline in farm prices coincides with an increase in manufactured-product costs, driving the benchmark wholesale price inflation rate to a 16-month high in February. Montek Singh Ahluwalia, a top economic adviser to Prime Minister Manmohan Singh, on Wednesday described the acceleration in the key inflation gauge as worrying.
Rising concern: Food price inflation was at 17.81% in the week ended 27 February. Indranil Bhoumik / Mint
“While food inflation will come off more, non-food drivers will become more important, as aggregate demand improves,” Rajeev Malik, a Singapore-based regional economist at Macquarie Group Ltd, said before the report. “Along with the strong tone of industrial output, the inflation details reinforce our view of a 25 basis points increase in the 20 April monetary policy.”
One basis point is one-hundredth of a percentage point.
Wholesale price inflation rate rose to 9.89% in February. Manufactured price inflation was at 7.42% last month from a year earlier after a 1.6% gain in October. India’s industrial production rose 16.7% in January, near the fastest pace since 1994.
“Growth is picking up,” said Ahluwalia, deputy chairman of the Planning Commission. “Now, what is the balance between controlling inflation and protecting growth is an issue for people responsible for short-term monetary management to take a look at.”
A sixfold increase in the spread between one-year swap rates and the overnight call rate in the current fiscal signals some investors are bracing for policy rates to be raised by as much as 3 percentage points by 31 December, said Arvind Sampath, head of interest rate trading at Standard Chartered Plc. He predicted the Reserve Bank of India will increase rates by no more than 1.25 percentage points, striking a balance between curbing inflation and supporting an economic recovery.
The one-year swap rate is currently at 4.90%, while the overnight rate is at 3.25%. The spread between the two rates has averaged 1.68 percentage points this month, compared with 27 basis points in April 2009, when the current fiscal year began.
Stocks were little changed after the report as investors weighed expectations that policy makers will take steps to curb inflation against the outlook for earnings growth.
Reserve Bank governor D. Subbarao has kept the central bank’s benchmark reverse repurchase rate unchanged at 3.25% since April, awaiting further evidence of a strengthening economy. In the last policy statement in January, he opted to order banks to hold more assets in reserves, raising the cash reserve ratio to 5.75% from 5%.
Finance minister Pranab Mukherjee on 26 February announced plans to start withdrawing the fiscal stimulus as consumer demand recovers, increasing the excise duty on most products to 10% from 8%. Companies including Indian Oil Corp. Ltd and ITC Ltd raised prices after tax was raised.
Even so, agriculture prices are falling as production increases. Sugar output in India, the world’s biggest buyer of the commodity, will be higher than forecast as cane yields improve, the Indian Sugar Mills Association said on 9 March. Production may total 16.8 million tonnes in the year ending 30 September, up from an earlier estimate of 16 million tonnes, the group said.
The wheat harvest will also reach a record this year, agriculture minister Sharad Pawar had said on 4 March.
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First Published: Thu, Mar 18 2010. 10 30 PM IST