Food inflation up again; belies Pawar’s promises

Food inflation accelerated slightly in late February, defying government predictions that price rises would start to moderate, and adding to pressure on the Reserve Bank of India) to raise interest rates in April.

The food price index rose 17.87 per cent in the 12 months to February 20 and the fuel price index was up 9.59 per cent. The rise in the food price index was higher than an annual rise of 17.58 per cent in the previous week.

With food inflation showing signs of impacting the wider economy, the RBI is widely expected to raise borrowing rates at its next policy review, given that inflation has already topped its revised end-March forecast of 8.5 per cent.

However, the government's decision to raise petrol prices by about 6 per cent and diesel by 7.75 per cent in last week's budget to help increase revenues and cut the budget deficit may prevent food prices from easing.

Yesterday agriculture minister Sharad Pawar told Parliament food prices have started easing and would further ease following a good winter crop. Both houses of parliament had earlier witnessed stormy scenes as opposition members demanded a rollback of the fuel price hikes, saying they would have a cascading effect on the already high prices of essential commodities.

"Today, truckers have decided to raise the prices. This is basically the second round of impact of the fuel price hike and will have some impact on food prices for the month of February and March," said Sujan Hajra, chief economist with Anand Rathi Securities in Mumbai, before today's data was released.