New Delhi: Annual food inflation picked-up pace for the second consecutive week, strengthening the case for more fiscal steps in the federal budget to tame prices after the central bank tightened monetary policy last week.

Analysts said any hike in petrol and diesel prices as suggested by a government panel on Wednesday would further drive broader inflation.

High food prices, resulting in part from a poor harvest of summer-sown crops after the worst monsoon in nearly three decades, are spilling into broader inflation, which some economists say could reach double-digits by the end of the fiscal year in March.

“If fuel prices are freed, that will lead to increase in fuel, food and wholesale price inflation, though politically I don’t see that happening as of now," said Bibek Debroy, an economist at Centre for Policy Research, a Delhi-based think tank.

The food price index rose 17.56% in the 12 months to 23 January, higher than an annual rise of 17.40% in the previous week, data released on Thursday showed.

The fuel index rose to an annual 5.88%, higher than an annual rise of 5.70% in the previous week.

Prime Minister Manmohan Singh, under pressure over high food prices, has scheduled a meeting of state chief ministers on Saturday to discuss steps to contain prices.

The central bank, which raised banks’ cash reserve ratio by a higher-than-expected 75 basis points in its quarterly monetary review on 29 January, lifted its wholesale price index inflation forecast for end-March to 8.5%.

It also said it expected inflation to moderate starting in July, assuming a normal monsoon and global oil prices holding at current levels.

Finance minister Pranab Mukherjee, who will present his budget for 2010/11 on 26 Febuary, is expected to partially withdraw fiscal stimulus announced last year, while announcing more measures to contain food prices.

Policymakers say the government could increase fund allocation for the farm sector, rural infrastructure and tax incentives to the food processing industry to increase supplies in the market.

The finance ministry’s chief economic adviser, Kaushik Basu, said last week that inflation was spreading to other sectors, but added that it would not go out of control.

India’s economy is expected to expand by 7% in the current fiscal year to end-March, faster than 6.7% last year, helped by a recovering global economy and rapid expansion in domestic industrial output, a Reuters poll showed last month.

The economy grew 7.9% in the quarter through September, its fastest in 18 months, while industrial production grew in November at its fastest pace in more than two years at 11.7%.