Bloomberg News

India Food Inflation Accelerates to 8-Week High on Onion Costs

June 09, 2011

June 9 (Bloomberg) -- India’s food inflation accelerated to an eight-week high, adding pressure on the central bank to raise interest rates next week.

An index measuring wholesale prices of agricultural products rose 9.01 percent in the week ended May 28 from a year earlier, the commerce ministry said in a statement in New Delhi today. It gained 8.06 percent the previous week.

The Reserve Bank of India, which has boosted borrowing costs nine times since mid-March 2010, may tighten its monetary policy further in the June 16 meeting, economists said. Food costs have been a policy concern for the last two years, Reserve Bank Deputy Governor Subir Gokarn said June 2.

“Price pressures are growing and more rate hikes are needed,” N.R. Bhanumurthy, a New Delhi-based economist at the National Institute for Public Finance and Policy, said before the report. He said the central bank’s benchmark repurchase rate may be increased by a quarter of a percentage point to 7.5 percent next week.

The Bombay Stock Exchange’s Sensitive Index lost 0.2 percent at 11:50 a.m., while the yield on the 7.8 percent note due April 2021 climbed 2 basis points to 8.26 percent. The rupee was little change at 44.72 against the dollar.

Food inflation quickened as prices of onions rose 14 percent from a year ago, today’s statement showed. Fruits climbed 30.78 percent and milk advanced 8.5 percent.

Food prices will accelerate in the second half of the year as farmers’ costs and oil prices rise, Ashok Gulati, chairman of the government commission that helps set minimum farm-product prices, said in an interview last month.

Prime Minister Manmohan Singh’s government is relying on adequate rainfall in the June to September monsoon season to help moderate food inflation.

The weather office said yesterday that the monsoon, the main source of irrigation for India’s 235 million farmers, was 17 percent above average since June 1.

--With assistance from Unni Krishnan, Manish Modi, Pradeep Kurup and Tuhin Kar in New Delhi. Editors: Cherian Thomas, Sunil Jagtiani

To contact the reporter on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.


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