India Food Inflation Quickens to Nine-Month High on Vegetables, Milk Costs

India’s food inflation accelerated to the highest level in nine months after prices of vegetables, milk and meat climbed.

An index measuring wholesale prices of agricultural products gained 12.21 percent in the week ended Oct. 22 from a year earlier, the commerce ministry said in a statement in New Delhi today. It rose 11.43 percent the previous week.

India faces a “very real threat” from food inflation, central bank Deputy Governor Subir Gokarn said yesterday. Still, the Reserve Bank of India has signaled a pause in its monetary tightening as Europe’s debt crisis threatens economic growth, saying past interest-rate increases will slow consumer demand.

“Food inflation can’t be tackled by monetary policy,” said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy in New Delhi. “Interest rates may have peaked as demand is showing signs of waning.”

The yield on the 7.80 percent government bond due April 2021 was little changed at 8.89 percent as of 2:26 p.m. in Mumbai. The BSE India Sensitive Index fell 0.3 percent. The rupee weakened 0.4 percent to 49.37 against the dollar.

Lower production of pulses and inadequate egg and meat supplies may put pressure on food prices, the Reserve Bank said on Oct. 25 as it raised rates for the 13th time since the start of 2010.

Vegetable Costs

Food inflation quickened in the week through Oct. 22 as vegetable costs jumped 28.9 percent from a year earlier, today’s report showed. Milk prices climbed 11.7 percent, while eggs, meat and fish increased 13.4 percent.

Reserve Bank Governor Duvvuri Subbarao has raised the benchmark rate by 375 basis points since mid-March 2010, the fastest round of increases since the central bank was established in 1935, Bloomberg data show. India’s benchmark wholesale-price inflation was 9.72 percent in September, having stayed above 9 percent all this year.

The increase in borrowing costs is curbing consumer demand.

India’s services industry moderated in October for a third straight month, according to the Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics today.

Commercial loans given by banks such as ICICI Bank Ltd. (ICICIBC) rose 19.45 percent as of Oct. 7 from a year earlier, less than the 21.42 percent gain in the previous week. Passengers travelling by airlines including Jet Airways Ltd. and Spicejet Ltd. dropped 4.7 percent in August compared with the previous month, according to the Airports Authority of India.

Growth Forecast

The Reserve Bank said Oct. 25 that its monetary tightening would moderate economic growth and help ease inflation. It cut India’s growth forecast to 7.6 percent from 8 percent for the fiscal year ending March 31, and reiterated benchmark wholesale- price inflation would slow to 7 percent by March 31.

Meanwhile, world food prices fell the most in 19 months in October as grains, dairy and cooking oils slumped.

An index of 55 food commodities fell for a fourth month to 216 points from 225 points in September, the United Nation’s Rome-based Food and Agriculture Organization said in an e- mailed report today. The 4 percent drop was the biggest since March 2010. The gauge rose to a record 238 points in February.

India’s inflation will start to decline from December and ease to 7 percent by March before moderating further in the first half of the new fiscal year starting April 1, according to the central bank. Beyond December, “if the inflation trajectory conforms to projections, further rate hikes may not be warranted,” the bank said last week.

Officials from China to South Korea have refrained from raising rates in recent weeks as Europe’s debt crisis dims the outlook for exports.

To contact the reporter on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net.

To contact the editor responsible for this story: Shamim Adam in Singapore at sadam2@bloomberg.net

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