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NEW DELHI – India's food prices fell for a fifth consecutive week as vegetable prices declined, diminishing the urgency for more aggressive monetary action to tame high inflation.
The wholesale price index for food articles decreased 0.6% to 178.4 in the week to Feb. 26 from 179.5 the previous week, according to data issued Thursday by the Ministry of Commerce and Industry.
The annual food inflation rate eased to 9.52% from 10.39%, slipping to a single-digit rate for the first time in 12 weeks and bolstering expectations of continued relief from high food prices.
The bond market cheered the data as a fall in food prices--the most significant driver of general inflation in India--will lessen the chances of a steep rate hike by the Reserve Bank of India. The 8.13% bond maturing in 2022 rose to 100.71 rupees ($2.42) soon after the data from 100.63 rupees before.
"We continue to believe that the peak of the current cycle of headline food inflation is already behind us," said Jay Shankar, chief economist at Religare Capital Markets. Mr. Shankar said a significant favorable base effect is now in play while the winter harvest has also reached the markets, improving food supply and sentiment.
Still, concerns of a revival in price rise haven't died down completely.
Devika Mehndiratta, a Singapore-based economist at Credit Suisse, said the fall in food prices was partly due to a seasonal decline in fruit and vegetable prices.
"This time, it's a bit larger because the spurt in fruit and vegetable prices was also larger than normal," she said.
Food inflation has remained high for several months now, rising to over 17% in January, driven by an increase in demand for high-protein foods and unseasonal rain in late 2010 that choked market supplies. But it has been easing slowly lately aided by a slew of fiscal and monetary measures.
The government had banned export of onions, arranged for imports and subsidized sales of the vegetable while also clamping down on cartels that were aggravating supply shortages. The ban on onion exports has since been lifted, after prices fell.
However, general inflation is still high and will likely prompt the RBI to raise rates for an eighth time since March 2010 at its next policy meeting on March 17, say economists.
"This February correction in primary food articles doesn't change our view for the RBI to raise rates later next week," Ms. Mehndiratta said.
Most economists expect a 0.25 percentage point increase.
The general inflation rate was 8.23% in January and is projected to ease to 7% by the end of March.
Kaushik Basu, the finance ministry's chief economic adviser, also indicated that the RBI may continue with its rate tightening over the next few months to bring down inflation.
"Since it did take longer for inflation to come down than we expected, our preferred initiative in policy is to bring down inflation," Mr. Basu told reporters in the western city of Pune. "We will continue it [initiatives] into a couple of months of the next fiscal year."
Mr. Basu also said the government is watching the spike in global crude oil prices due to civil unrest in the Middle East and North Africa. He said a rise over a longer period would be a matter of concern for the government.
India imports nearly 80% of its oil needs, making it vulnerable to volatility in crude prices.
Data issued Thursday also showed that the index for primary articles, which comprises food and non-food articles as well as minerals, fell 0.6% to 186.1 in the week to Feb. 26, from a provisional 187.2 in the previous week.
The index was up 13.96% from a year earlier, after climbing 14.85% in the week to Feb. 19
Source : online.wsj.com
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