India food price inflation eases
Analysts say pick-up in economic growth would keep WPI at high levels for rest of year
New Delhi : India's food price inflation eased for the second straight week in early March, but fuel inflation rose, maintaining the case for the central bank to raise borrowing rates at its April policy review.
Analysts said headline wholesale price inflation (WPI) would cross into the double digits by March before retreating over the next few months, but a pick-up in economic growth would keep WPI at high levels for the rest of the year.
Steepening inflation has seen markets pricing in a 25 to 50 basis point interest rate hike in April. Bond yields were steady yesterday as the latest data did little to change those expectations.
"It (WPI) should peak towards the middle of the year and come off a little bit towards the end of the year, but still be high," said Brian Jackson, an emerging-market economist with the Royal Bank of Canada in Hong Kong.
"You're still getting some pressure from the fiscal side on total demand, and that sort of highlights that current policy rates are not appropriate given where we are."
Data released yesterday showed the food price index rose 16.30 per cent in the year to March 6, lower than an annual rise of 17.81 per cent in the previous week.
It was the second straight weekly easing of food price inflation and analysts expected the trend to continue, echoing policymakers' comments that high inflation was due to supply shortages and would cool off as the new, winter-sown harvest reached the market.
The fuel price index rose 12.68 per cent in the year to March 6, up from an annual rise of 11.38 per cent in the previous week. The federal government had hiked state-set motor fuel prices at the end of February.
Key policymakers have said headline inflation would ease over the next two months, after the fin-ance minister said it could top 10 per cent in March following a reading of 9.89 per cent in February.
But in a sign the government was giving the green light to a rate hike, a top policy adviser said the Reserve Bank of India ought to carefully consider a return to a normal monetary policy.
Government officials have had until recently called for the Reserve Bank of India to ensure any possible rate hike does not put the country's economic recovery at risk.
The central bank has to balance managing the federal government's record $100 billion (Dh367 billion) borrowing plan for the 2010-11 fiscal year with supporting growth and taming inflation.
