India Food Inflation Eases 

 

NEW DELHI -- India's food inflation rate fell slightly in the week ended May 7, but still hovers at elevated levels that will keep intact the pressure on the central bank to continue tightening monetary policy.

Food prices based on the wholesale price index rose 7.47% during the week from a year earlier, slower than the 7.7% increase in the week to April 30, according to data issued Thursday by the Ministry of Commerce and Industry.

However, the food index was up 0.4% at 185.5 in the week to May 7 from 184.7 in the previous week.

The data reflect simmering price pressures in the economy that haven't eased as the government and the central bank had hoped, keeping afloat chances of continued aggressive rate hikes by the Reserve Bank of India.

Jay Shankar, chief economist at Religare Capital Markets, said food inflation will likely remain below 8% for the next few weeks. He added that "the heartening data point is the decline in non-food inflation."

The index of non-food articles fell 4.18% in the week to May 7 from the previous week. On a year-on-year basis, the index was up 23.82%, slower than the 28.62% rise the week before.

The index of primary articles, which comprises food and non-food articles as well as minerals, fell 0.6% to 191.7 in the week to May 7, from a provisional 192.8 in the previous week. On a year-on-year basis, prices of primary articles grew 10.94%, lower than the 11.96% rise in the week before.

High food prices have been the main driver of inflation in India, but price pressures have lately spread to non-food commodities, leading to stickiness in overall prices.

Data Monday showed general inflation in eased to 8.66% from a year earlier, compared with 9.04% in March.

RBI Governor D. Subbarao said Wednesday inflation was still high and must be brought down even if that hurts economic growth in the short term.

The sentiment was echoed by Kaushik Basu, the finance ministry's chief economic adviser, who said Wednesday that inflation was at unacceptable levels.

The hawkish comments add to market expectations that the central bank will raise its lending rate by at least 0.25 percentage point when it next meets to review monetary policy on June 16.

Sujan Hajra, chief economist at Anand Rathi Share and Stock Brokers, said the central bank may increase the policy rate by 0.50 percentage point by March. But some other economists predict rate increases of as much as 1 perentage point by March.

Economists are now watching for the onset of the seasonal monsoon rain, which is so far expected to be normal this year.

"The prediction of a normal monsoon along with a global correction in commodity prices may help [general] inflation to average 6% in the second half of the fiscal year," Mr. Hajra said.