Food inflation inches up in mid-January

Food inflation inches up in mid-January

New Delhi: Food inflation remained sticky in mid-January on higher onion and fruit prices while fuel inflation eased, but it is unlikely to affect expectations of further rates increases by the Reserve Bank of India (RBI) in coming months.

The RBI, which on Tuesday raised policy rates for the seventh time since last March, had said the balance of risks had tilted towards stronger inflation and that it was ready to respond if price pressures increased.

Food inflation had remained in double digits for most of past one year and had been the key contributor to its headline inflation, which in December rose to 8.43% from 7.48% in November.

Food inflation quickened to a one-year high late last month as unseasonal rains hurt the summer harvest of vegetables such as onions, potatoes and tomatoes.

The food price index rose 15.57% while the fuel price index climbed 10.87% in the year to 15 January, government data showed on Thursday.

In the prior week, annual food and fuel inflation stood at 15.52% and 11.53%. The primary articles price index was up 17.26% in the latest week, compared with an annual rise of 17.03% a week earlier, data showed.

The yield on the most traded 8.08%, 2022 bond rose by 1 basis point to 8.17% after data showed no let up in food inflation.

Analysts expect food prices to remain high though some moderation is seen by March.

“I expect food inflation to come down substantially in end-March after the winter crop comes in," said Rajiv Kumar, director general of the Federation of Indian Chambers of Commerce and Industry, a New Delhi-based industrial lobby group.

“But, the RBI has to do its bit and continue to raise rates as it has to quell second-order effects of inflation and dampen inflationary expectations."

Apart from a rise in food prices globally, which the United Nations food agency says are at record highs, India is dealing with domestic supply problems, including poor distribution networks, that are pushing up food prices.

“As high food inflation persists, the prospect of it spilling over to the general inflation process is rapidly becoming a reality," RBI governor Duvvuri Subbarao said on Tuesday.

While the rate hike by the RBI would help ease food inflation to some extent, the government needs to curb “speculation" in the commodities markets that is contributing to high prices, Abhijit Sen, a government adviser on the farm sector said on Tuesday.

Sen also said the annual food inflation was unlikely to come down to the level of WPI inflation, if the annual farm output growth did not touch 4%.

Talk of agriculture reforms in recent years in India has yielded little action in the face of resistance from politicians courting rural voters, and the government has instead relied on stop-gap steps to fight food inflation such as imports, export curbs, and anti-hoarding measures.