India’s food inflation eases third week in a row

Monday, 8 November 2010 04:30 - - {{hitsCtrl.values.hits}}

New Delhi (Reuters): India’s annual food inflation eased for a third week in late October on improved supply and lower vegetable prices, providing some relief to policymakers in the fight against stubbornly high inflation.

The food price index in the year to Oct. 23 rose 12.85 percent, compared with 13.75 percent in the previous week, as the prices of vegetables and pulses fell.

Fuel inflation for the same period was at 10.67 percent, slowing from 11.25 percent the prior week. The primary articles price index was up 15.43 percent, compared with an annual rise of 16.62 percent a week earlier.

Food makes up a little over 14 percent of the wholesale price index (WPI) while fuel contributes about 15 percent.

“Food inflation is expected to come down to single digits in the next three months with improvement in supplies of foodgrains and vegetables,” said Basanta Pradhan, an economist at Institute of Economic Growth, a Delhi-based think-tank.

Higher food prices pushed up headline inflation to 8.62 percent in September from 8.5 percent a month ago, putting at risk the central bank’s aim of bring it down to 5.5 percent by March.

The Reserve Bank of India (RBI) raised its lending and borrowing rates for the sixth time this year on Tuesday by 25 basis points each to tame inflation.

Analysts said although monetary tools are largely ineffective in controlling food inflation, high food prices tend to stoke wider inflation.

“I do not expect much impact of the RBI’s rate hike on food inflation, while it will tamper inflationary expectations,” Pradhan said.

Normal monsoon rains were expected to bring down food prices in a country where about 40 percent of the 1.2 billion population lives on less than $1.25 a day, but price indicators have belied all such optimism so far.

Policymakers fear food inflation, long seen to be a supply-side problem, is turning into a demand-driven problem with spurt in demand for food items due to rising income levels in an economy growing at 8.5 percent.

India’s farm ministry expects a 10 percent rise in summer grains output and a 17 percent increase in cane output that are likely to ease supply side pressures on food prices.

High food prices are also seen to be hampering the ruling Congress party’s intention to grow its political base. It faces elections in key states this year and next.

Sonia Gandhi, India’s most powerful politician and head of the Congress party, on Tuesday asked her party’s government to take more steps to contain prices.