Food, fuel prices continue upward march

India's food and fuel inflation accelerated in the third week of August, maintaining pressure on the Reserve Bank of India (RBI) to tighten monetary policy. Despite a muted global economic recovery and signs that India's booming growth may have peaked, the RBI is expected to raise rates by another 50 basis points in 2010, suggests CNBC-TV18.

Data released today showed that the food price index, which has a weightage of over 15 percent in the wider wholesale price index, rose an annual 10.86 per cent in the week to 21 August, more than its 10.05 per cent rise in the previous week.

The price rises come despite good monsoon rains this year, which are crucial for irrigation, as well as government predictions that price rises would ease. Higher prices of fruits and vegetables led to food inflation accelerating in the latest data.

"Food inflation is up mainly due to seasonal movement and disruption in the movement of farm goods during monsoon season," said Rajeev Kumar, an economist and former director of ICRIER, a Delhi-based think tank. "I still expect the RBI to raise key interest rates by another 25 basis points on 16 September," he added, referring to the next central bank policy review.

The 10-year benchmark bond yield rose one basis point to 7.97 per cent after the release of the food inflation data.

The fuel price index rose an annual 12.71 per cent in the period, as against an annual 12.57 per cent in the previous week. The government raised prices of fuels in late June.