India’s Food Inflation Slows, Pressure for Higher Interest Rates Remains

India’s food inflation slowed, an easing that may be insufficient to prevent the central bank from raising interest rates further.

An index measuring wholesale prices of farm products including rice and wheat rose 9.03 percent in the week ended Aug. 6 from a year earlier, the commerce ministry said in an e- mailed statement today. It rose 9.9 percent the previous week.

Price gains in India are the fastest among the so-called BRICS nations and policy makers have raised borrowing costs 11 times since mid-March 2010. Indian households expect inflation to accelerate in the 12 months through June “mainly because of the movements in food price,” the central bank said last week.

“Food prices are adding to overall inflation pressure,” Madan Sabnavis, chief economist at Credit Analysis & Research Ltd., a Mumbai-based ratings company, said before the report. He expects the Reserve Bank of India to boost its repurchase rate by a quarter of a percentage point to 8.25 percent on Sept. 16.

India’s benchmark wholesale-price inflation was 9.22 percent in July, the commerce ministry said Aug. 16. By comparison, consumer prices rose 6.9 percent in Brazil, 9 percent in Russia, 6.5 percent in China and 5 percent in South Africa.

Inflation expectations in India by the end of June climbed to 12.9 percent from a year ago, compared with 12.7 percent earlier, the central bank said in a report on Aug. 11, based on a survey of 4,000 households.

The price of pulses dropped 5.6 percent in the week ended Aug. 6 from a year earlier, today’s report showed. Wheat costs rose 0.6 percent after a 2.6 percent gain the previous week.

India’s Prime Minister Manmohan Singh said Aug. 15 that taming inflation would be his government’s “top-most” priority.

Governor Duvvuri Subbarao said Aug. 12 that it’s “too early to say” whether there would be a change in the Indian central bank’s monetary policy stance amid threats to economic growth posed by Europe’s debt crisis and a faltering U.S. recovery.

To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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