Food inflation eases; fuel prices continue to rise

Food inflation eases; fuel prices continue to rise

New Delhi: India’s annual food price inflation eased in mid-April, but fuel price inflation quickened maintaining an upside pressure on the wholesale price index that could prompt further monetary tightening by the Reserve Bank of India.

The food price index rose 16.61% in the 12 months to 17 April, lower than an annual rise of 17.65% in the previous week, government data showed on Thursday.

The fuel price index rose an annual 12.69%, marginally higher than the previous week’s reading of 12.45%.

Top policymakers including Union finance minister Pranab Mukherjee have said this week that there were clear indications that food price inflation was softening on forecasts of a good winter crop harvest and a normal monsoon this year, which in turn would cool down the headline inflation.

“I don’t think the RBI will hold back on rates even if food and fuel (prices) peak because manufacturing inflation is still a big worry and inflation is out of the comfort zone," said N R Bhanumurthy, professor at New Delhi-based think-tank National Institute of Public Finance and Policy.

Wholesale price inflation in March touched a 17-month high of 9.9%, prompting the RBI to raise rates in April for the second time in as many months.

RBI governor Duvvuri Subbarao said rising prices for food, fuel and wages have made inflation more of a generalised and demand-side problem.

Much of the country’s inflationary pressures were initially on the supply-side as a result of the 2009 monsoon failure that pushed up food prices.

But summer monsoon is likely to be normal this year, with rainfall expected to be 98% of the long-term average, the government said last Friday.

The RBI has forecast the headline inflation to ease to 5.5% at end-March 2011 on normal monsoon.


Saumitra Chaudhuri, a member of the Planning Commission, told Reuters on Wednesday headline inflation has peaked and April inflation could be below 9%.

However, analysts were not convinced inflation would ease off so soon and called the projection too optimistic.

Government officials, keen to keep the economic growth on track, have said inflationary pressures were waning and have played down the need for aggressive monetary tightening. However, price indicators have mostly belied such an optimism.

Headline inflation numbers have been consistently higher than the official forecasts. The wholesale price inflation vaulted above the RBI’s end-March 2010 inflation forecast of 8.5% in January and hovered near the 10% mark in the following two months.

Also the inflation figures for the previous months have seen sharp upward revisions. Although food price inflation has eased from its peak of 20% in December, it is still near 17%.

Last week, the central bank raised its key interest rates and bank reserve requirements by 25 basis points each and signalled further rises as it battles to rein in a build-up in inflationary expectations.

The Congress-led ruling coalition is under pressure to stem rising inflation, which is seen hurting the poor.

The government on Tuesday survived a trial of strength in Parliament demanded by opposition parties against an unpopular hike in fuel and fertilizer prices which they said stoked inflation.