New Delhi: India’s annual food inflation eased to its lowest level in 18 months in the year to 20 November, pressed down by lower prices of potatoes, pulses and vegetables, in line with policymaker forecasts.
Food inflation eased for the seventh straight week under a new data series, pushed down by normal monsoon rains and new crop arrivals in the market. It rose to more than 17% in January which had helped drive headline inflation to double digits earlier in the year and prompted the central bank to raise key rates.
Food items have a weightage of just over 14% in the wholesale price index, the most widely watched gauge of prices in India.
“The food inflation even at this level is still very high,” said N R Bhanumurthy, economist with the Delhi-based policy think-tank NIPFP. “It has come down maybe because of good summer crop which has in turn driven down (inflationary) expectations.”
Bhanumurthy said he expects food inflation to ease further and settle at around 6% by the end of the fiscal year ending March 2011.
The food price index in the year to 20 November rose 8.60%, compared with 10.15% in the previous week, government data on Thursday showed.
The benchmark 10-year bond yield rose 1 basis point, briefly after the data, to 8.12%.
Food inflation is at its lowest since July 2010 under a new data series introduced by the government earlier in the year. Under the old series with a different base year, it is at its lowest since May 2009, said a government statistician.
Fuel price inflation eased to 9.99% in the latest week, compared with the prior week’s 10.57%, while the primary articles price index was up 12.72% compared with an annual rise of 13.38% a week earlier.
Subir Gokarn, a deputy governor of the central bank, said on Wednesday that the Reserve Bank of India (RBI) has a limited role in containing food inflationary pressures and that they need supply-side measures by the government.
“We have come to the conclusion that there is a structural driver to food inflation. In this case, the appropriate approach is to address the supply side,” Gokarn said.
Kaushik Basu, the chief economic adviser to the finance ministry had forecast on Tuesday that food inflation would ease to below 9% this week.
India’s wholesale price index rose 8.58% in October from a year earlier -- its lowest in 10 months -- compared with 8.62% in September.
Analysts polled by Reuters expect the RBI, which reviews policy on 16 December, to raise rates by an additional 25 basis points by end-March, in its efforts to squeeze inflation back to its target of 5.5% by then.
The RBI has so far raised its key lending and borrowing rates by 150 and 200 basis points respectively since mid-March to anchor inflationary expectations.