Monsoon is expected to cool prices

New Delhi: India's food inflation accelerated ahead of a report due today that may show monsoon rains this year will be sufficient to cool farm prices.

An index measuring wholesale prices of agriculture products including lentils, rice and vegetables compiled by the commerce ministry rose 17.65 per cent in the week ended April 10 from a year earlier. It gained 17.22 per cent the previous week, according to a statement in New Delhi yesterday.

The Reserve Bank of India is relying on "normal" rains to drive down food prices and almost halve the benchmark inflation rate to 5.5 per cent by March 2011. India's June-September monsoon rains may be adequate this season, two government officials said yesterday before the state-run India Meteorological Department's forecast today.

"If the monsoon isn't normal, then inflation expectations will remain high and food inflation will linger longer at high levels," Shubhada Rao, chief economist at Yes Bank Ltd., said in an interview in Mumbai before the report.

Stocks

The Sensitive stock index rose 0.7 per cent to 17,588.20 as of 12.15pm on the Bombay Stock Exchange. The yield on the benchmark 10-year bond fell one basis point to 7.98 per cent after the food inflation data.

Rainfall in India will be 98 per cent of the 50-year average in the monsoon season, the government officials said. The showers are the main source of irrigation in the South Asian country. Last year's rains were the worst since 1972, cutting production of rice, wheat and sugar.

A weak monsoon may force the Reserve Bank to step up efforts to curb inflation, Governor Duvvuri Subbarao said on Wednesday.

The central bank increased interest rates and the cash reserve ratio by a quarter point each on April 20 after raising the rates by a similar step last month.