Food price inflation inches up in early May

Food price inflation inches up in early May

New Delhi: India’s food price inflation picked up for the second consecutive week in early May, but with wholesale price inflation seen cooling and uncertainty over the impact of the euro zone sovereign debt crisis, the Reserve Bank of India (RBI) is unlikely to raise rates ahead of its July policy review.

The food price index rose to 16.49% in the year to 8 May, government data on Thursday showed, a touch higher than the prior week’s annual reading of 16.44% as fruit and vegetable prices climbed on the back of a heat wave.

The fuel price index was steady at 12.33%, while the primary articles index was up 16.19% versus 16.76%.

The benchmark 10-year federal bond yield barely moved at 7.45% after the data release.

In an indication that the central bank would not lower its guard on inflation, RBI governor D. Subbarao said on Wednesday that demand-side pressures were picking up and asset prices were rising rapidly.

While food and fuel inflation remain in double digits, manufacturing inflation, which RBI has said would determine its policy response, fell in April to 6.7% from 7.13% in March.

The markets expect the central bank to raise rates by 25 basis points in the policy review on 27 July.

Analysts say the Centre’s decision on Wednesday to more than double the price of regulated gas may stoke wholesale price inflation, which had hit an annual 9.59% in April.

“This will have an inflationary impact because it will lead to a permanent rise in input costs for the user industries," said N. Bhanumurthy, an economist with think tank National Institute of Public Finance and Policy.

The government expects food prices to ease with the arrival of more winter harvest and normal monsoon that begins in June.