The food inflation accelerated slightly in mid February on rising prices of milk and fruits, amid expectations the government may announce fresh measures to rein in inflation in the Budget.
Indian food inflation is among the highest in Asia despite good harvests and food prices have been in double digits for much of the 2010, sparking street protests and keeping pressure on the government already under fire over corruption scandals.
On Thursday's reading was the last before the February. 28 Budget, where finance minister Pranab Mukherjee is expected to announce measures to boost farm productivity and trim fiscal deficit. He will also probably hold off on a pending reform to deregulate diesel prices, which would likely fuel inflation.
The food index rose 11.49 per cent in the week ending February. 12, despite policymakers' often repeated projections in 2010 that prices would ease to single digits.Overall headline inflation remained stubbornly high at more than 8 per cent in January despite seven rate hikes by the central bank since March, with more tightening expected at the bank's mid-quarter policy review in mid-March.
Food prices have risen around 11 per cent since March 2010 and the Reserve Bank of India, which is expected to raise rates by another 25 basis points next month, wants the government to pursue fiscal consolidation in the budget to rein in inflation.
India's food prices, pushed up by long-term problems such as supply constraints and poor storage facilities, have defied government predictions and stayed high for most of 2010, hitting a one-year high of more than 18 per cent in December.
Soaring global oil prices, which hit a fresh 2-½ year peak on Thursday on concern the bloody unrest that has cut over a quarter of Opec-member Libya's crude output, could spread to other major producers, presents a fresh headache.
High oil prices could lead to higher fuel inflation in India, and then to higher food prices as well if the government decides to partly pass on the spike to consumers by, for example, hiking state-controlled diesel prices.
Food inflation could also move up in the coming months if the government answers a call by the country's farm minister to resume exports of farm products that had been halted to tame prices, analysts say.
Farm minister Sharad Pawar called on on Wednesday for limited exports of wheat, rice and sugar to resume, saying the country's wheat production was likely to hit a record 84 million tonnes in 2011.
The government is reluctant to open up exports worrying its impact on inflationary expectations in the market and political cost it may have to pay in elections in five states, scheduled over the next few months.
About 100,000 trade unionists, including members of a trade union linked to the ruling Congress party protested against high food prices and unemployment on Wednesday, reflecting disquiet within the party over food inflation.
The main opposition Bharatiya Janata Party responded with its own rally in the Indian capital on Thursday.
India's food price index rose 11.49 on Thursday's reading, slightly higher than last week's reading of 11.05 per cent.