Bloomberg News

India Food Inflation Quickens, Sustaining Interest-Rate Pressure

September 01, 2011

Sept. 1 (Bloomberg) -- India’s food inflation accelerated to a four-month high and exports surged, sustaining pressure on the central bank to raise interest rates even as growth slows.

An index measuring wholesale prices of farm products including rice and wheat rose 10.05 percent in the week ended Aug. 20 from a year earlier, the commerce ministry said in an e- mailed statement in New Delhi today. Merchandise shipments jumped 81.8 percent to $29.3 billion in July from a year earlier, a separate report showed, the biggest increase since at least April 1995, according to Bloomberg data.

Gains in food prices have kept India’s inflation rate the highest among major economies in Asia, prompting central bank Governor Duvvuri Subbarao to boost borrowing costs at a record pace since mid-March 2010. While easing economic growth in the region has led nations from Malaysia to the Philippines to pause rate increases, the Reserve Bank of India said last week price gains may remain “stubborn.”

“Inflation, including food prices, are still way above the central bank’s comfort level,” Jay Shankar, the Mumbai-based chief economist at Religare Capital Markets Ltd., said before the report. “The RBI has no choice but to go ahead with rate hikes.”

He expects the Reserve Bank to raise its repurchase rate by a quarter of a percentage point to 8.25 percent in the Sept. 16 policy meeting. Subbarao has boosted the Reserve Bank’s benchmark rate by 325 basis points since mid-March 2010, the fastest round of increases since the central bank was established in 1935, Bloomberg data show.

Inflation Rate

India’s benchmark wholesale-price inflation was 9.22 percent in July. Consumer prices rose 6.5 percent in China, 4.61 percent in Indonesia, 4.7 percent in South Korea and 4.08 percent in Thailand that month.

Asian nations are juggling the need to contain inflation against protecting their economies from a faltering U.S. recovery and Europe’s debt crisis. In India, gross domestic product rose 7.7 percent in the three months ended June 30 from a year earlier, a report showed this week, less than a 7.8 percent gain in the previous three months.

Favorable monsoon rains may help moderate inflation, Indian Finance Minister Pranab Mukherjee said Aug. 16.

A revival in rainfall in August helped the nation erase a deficit in precipitation in July, the weather office said last month. India aims to boost food-grain output to a record 245 million metric tons in the year that began July 1 after harvesting an estimated 241.56 million tons the previous year, according to the farm ministry.

--With assistance from Kartik Goyal in New Delhi and Vipin Nair in Mumbai. Editors: Stephanie Phang, Alan Soughley

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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