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Food inflation eases third week in a row

business Updated: Nov 04, 2010 12:27 IST

Reuters
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Country's annual food inflation reported on Thursday 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 per cent, compared with 13.75 per cent in the previous week, as the prices of vegetables and pulses fell.

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

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

"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 per cent in September from 8.5 per cent a month ago, putting at risk the central bank's aim of bring it down to 5.5 per cent by March. The Reserve Bank of India (RBI) raised its lending and borrowing rates for the sixth time in 2010 on Tuesday by 25 basis points each to tame inflation.

Analysts said that 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 per cent 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 per cent.

The country's farm ministry expects a 10 per cent rise in summer grains output and a 17 per cent increase in cane output that are likely to ease supply side pressures on food prices.

High food 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 in 2011 and 2012.

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