Food inflation at 17.5%, may prompt hike in interest rates

Food inflation at 17.5%, may prompt hike in interest rates

New Delhi: Food inflation accelerated for a second week to near an 11-year high as economists bet the central bank may raise interest rates after ordering lenders to keep more cash reserves last week.

An index measuring wholesale prices of lentils, rice, vegetables and other food articles compiled by the commerce ministry increased 17.56% in the week to 23 January from a year earlier, following a 17.4% gain the previous week. Food inflation reached 19.95% in the week to 5 December, the fastest pace since December 1998.

Central bank governor D. Subbarao has started to withdraw monetary stimulus to prevent consumer demand for manufactured goods and services from becoming excessive and adding to inflationary pressure. He raised the proportion of deposits lenders need to set aside as reserves on 29 January and economists expect him to raise the benchmark interest rates before the next policy announcement on 20 April.

“Inflation is a big problem," Kevin Grice, an economist at Capital Economics Ltd in London, said before the report. “A hike in policy rates is still imminent."

My Reads Logout