March. 3: Food inflation eased in mid February following a drop in prices of vegetables and milk, but high headline inflation would keep the pressure on the Reserve Bank of India (RBI) to raise interest rates this month.
The UN Food and Agriculture Organisation (FAO), meanwhile, claimed that world food prices hit record highs in February, after rising for an eighth consecutive month. Food inflation in India is among the highest in Asia and the finance minister, Mr Pranab Mukherjee’s annual Budget had spelt out steps to help boost output.
The embattled government, already battling a slew of corruption scandals, has said fighting high food prices was a top priority for the nation of more than one billion people.
The food index declined by one percentage point to 10.39 per cent in the week ended February 19 from 11.49 per cent a week ago. Food inflation stood at 21.62 per cent in the corresponding period a year ago. The data showed onion pri-ces fell by 16.3 per cent, vegetable prices declined 6.03 per cent and milk prices dropped 4.1 per cent, compared with a week earlier. “The food price data does seem to suggest that we are likely seeing a softening trend now but as oil prices have been on the move, we need to watch the fuel price index, to gauge the overall impact on the headline number,” said Mr Anubhuti Sahay, an economist with Standard Chartered Bank.
Headline inflation in January was at 8.23 per cent and the finance ministry’s chief economic adviser, Mr Kaushik Basu, has said that the February number would be in line with January.
The RBI has raised rates seven times in the past 12 months but headline inflation has remained high partly due to high food prices caused by a sudden shortage of fruits and vegetables.
The RBI is expected to raise rates by 25 basis points at its policy review on March 17. The budget for 2011-12 allocated additional funds to raise output of lentils, vegetables, milk and edible oil, and analysts have said India needs to raise output to cool prices.