Food inflation accelerates slightly

Food inflation accelerates slightly

New Delhi: India’s food inflation accelerated slightly in late February, defying government predictions that price rises would start to moderate, adding to pressure on the Reserve Bank of India (RBI) to raise interest rates in April.

The food price index rose 17.87% in the 12 months to 20 February and the fuel price index was up 9.59%.

The rise in the food price index was higher than an annual rise of 17.58% in the previous week.

With food inflation showing signs of impacting the wider economy, the central bank is widely expected to raise borrowing rates at its next policy review given that inflation has already topped its revised end-March forecast of 8.5%.

Union agriculture minister Sharad Pawar on Wednesday told Parliament food prices have started easing and would further ease following a good winter crop.

However, the government’s decision to raise petrol prices by about 6% and diesel by 7.75% in last week’s Budget to help increase revenues and cut the budget deficit may prevent food prices from easing.

“Today, truckers have decided to raise the prices. This is basically the second round of impact of the fuel price hike and will have some impact on food prices for the month of February and March," said Sujan Hajra, chief economist with Anand Rathi Securities in Mumbai, before Thursday’s data was released.

The government’s decision to raise fuel prices for the first time since July has met with anger from both the opposition and ruling coalition allies, underlining the challenge in cutting a near 7% fiscal deficit.

High food prices coupled with a pick in manufacturing and fuel prices are expected to push the headline inflation to double-digits by end-March from 8.56% in January.

In January, the RBI surprised markets with a bigger-than-expected rise in banks’ cash reserve requirements, but left the borrowing rates unchanged.

Inflation in manufacturing picked up to 6.55% in January from about 5% in December, a sign that inflationary pressures were spreading to other sectors of the economy.