Food inflation continues to accelerate

Food inflation continues to accelerate

New Delhi: India’s food inflation continued to accelerate in the year to 11 September, maintaining expectations of another rate hike by the year end.

Last week, Reserve Bank of India (RBI) said headline inflation had plateaued, but would remain unacceptably high for some months. It expects the inflation to ease to 6% by March from 8.5% in August.

But analysts say the tightening cycle may be close to an end with the RBI noting that its five rate hikes so far this year have brought monetary policy close to normal from crisis settings in the wake of the global financial crisis.

The food price index rose an annual 15.46% in the week to 11 September, compared with 15.10% a week ago. The annual fuel price inflation of 11.48% was flat on the week.

The primary articles index rose 16.80%, faster than the week-ago increase of 16.22%.

Debt markets shrugged off the latest data, with the yield on the benchmark 10-year government bond unchanged at 7.94%. The markets’ focus is on the details of the government’s second-half borrowing, which will be announced later in the day.

The latest inflation reading and that of the previous week are from a new data series with changed base year, weightings and components and are not comparable with the earlier data.

Much of the recent spurt in food prices is due to floods in some parts of the country, but a top policy adviser said better farm output this year will cool down prices.

High food prices are a headache for the Congress party-led coalition government, with over 40% of India’s 1.2 billion population living on less than $1.25 a day, and could mar the party’s chances in crucial state elections this year and the next.