India's food inflation remains way above the "comfort" level of the government and consumers alike, posing a challenge for policymakers, although prices overall have eased in line with falling global commodity prices.
Contrary to some arguments, Reserve Bank governor Duvvuri
Subbarao said in a recent speech that the central bank did not accept high inflation as the "new normal", suggesting the bank would continue with its policies to bring prices down.
Although declining somewhat since peaking in January, wholesale food prices rose nearly 9% in March, compared to the 4% inflation rate for manufactured items.
Ratings agency Moody's said in a report last month that food prices in India were rising faster than the global rate. While the World Bank food price index for emerging countries rose 3% year-on-year in the past 12 months, India's food prices increased 10%, it said.
A drought in states, such as Maharashtra, will cut food output this year, particularly coarse cereals and vegetables, according to a forecast by the Prime Minister's economic advisory council. "We expect (India's) food inflation to remain sticky," Rob Subbaraman, chief economist at Japanese investment firm Nomura said.
Supply constraints, higher farming costs and MSPs will continue to pressure prices. MSP is the assured floor price at which government buys produce from farmers. A 10% MSP hike raises short-term wholesale inflation by 1 percentage point, according to the RBI.
Last year, a Competition Commission of India-ordered study on onion prices pointed to collusive practices in Maharashtra's Lasangoan, Asia's largest onion market, adding to price volatility. Onion prices rose 95% in March, the highest among food commodities.
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