Food price index up 19.95% on 5 Dec

Food price index up 19.95% on 5 Dec

New Delhi: India’s annual food prices rose at 19.95% in first week of December, its highest in 2009, and adding pressure on the central bank to tighten monetary policy.

The food price index rose 0.3% in the 12 months to 5 December, as the worst dry spell in nearly four decades and floods in parts of the country hurt summer crops.

The yield on the benchmark 10-year bond was steady at 7.68% after the release of the data.

The one-year swap rate rose to a 12-month high of 5.15% on Wednesday, around 67 basis points above the 2-1/2-month low hit late November. But it remained steady after the release of data.

Since food prices have already started pushing up manufacturing prices, rising 4 percent in November compared to a year ago, analysts say the central bank could tighten liquidity supply in December.

The central bank holds its next policy meeting in late January, but it can adjust monetary policy at any time.

C. Rangarajan, chairman, Prime Minister’s Economic Advisory Council, was quoted by media this week saying Reserve Bank of India may tighten monetary policy in December as inflation could rise to near 7% in March.

Food prices are politically sensitive in India and the federal government is under pressure from the opposition parties and allies to contain inflation, especially food prices which are hurting poorer sections in the country.

Finance minister Pranab Mukherjee told parliament on Tuesday that government was concerned about rising prices and would take all necessary steps to tame inflation.

The annual wholesale price inflation, which stood at 1.34% in October, rose to 4.78% in November.

Economists have said the index could climb to as much as 8% by the end of the fiscal year, above the central bank’s perceived comfort zone of around 5%.

The central bank, which cut its key lending rate by 425 basis points during the worst of the global crisis, began scaling back its monetary stimulus at its last policy review in October by removing some of the liquidity support measures.

It left its key rates steady in October, but the fastest economic expansion in 18 months in the quarter through September fuelled expectations that it will bring forward a rate rise to contain inflation.