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Food Inflation Quickens to Two-Year High of 11.47%, Spurring Rate Pressure
India’s food inflation accelerated to almost a two-month high, adding pressure on the central bank to raise interest rates next week.
An index measuring wholesale prices of agriculture products including lentils, rice and vegetables compiled by the commerce ministry rose 11.47 percent in the week ended Aug. 28 from a year earlier, according to a statement released in New Delhi today. It gained 10.86 percent the previous week.
Prime Minister Manmohan Singh’s government is concerned persistently high food costs will lead to more wage demands, stoking inflation. Reserve Bank of India Governor Duvvuri Subbarao has undertaken the most aggressive monetary-policy tightening in Asia this year to damp prices. He is scheduled to set rates next on Sept. 16.
“Higher food inflation is already translating into demands for more wages,” said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai. “Inflation continues to be worrisome, although going into the second half, we do expect it to moderate.”
Food prices may fall as the June-September monsoon rains have been adequate to expand cultivation. Last year’s rains were the least since 1972.
India’s sugar production may jump 17 percent to 22 million tons this year, according to Agriculture Minister Sharad Pawar. The area under rice cultivation rose about 7 percent to 31.9 million hectares as of Sept. 2, according to government data.
Subbarao has increased rates four times since mid-March. The Reserve Bank’s reverse repurchase rate is 4.5 percent and the repurchase rate is 5.75 percent.
To contact the reporter on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net.
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