What you eat is going to pinch your purse

What you eat is going to pinch your purse


New Delhi - The country's food inflation picked up for the fourth straight week in early February, heightening worries it was driving headline inflation past official forecasts and increasing the chance of the Reserve Bank of India (RBI) pushing up rates.



No takers: A vegetable vendor waits for customers following the spiralling increase in food prices

Food prices rose 17.97 percent in the 12 months to February 6, after an annual rise of 17.94 percent in the previous week, data released on February 18 showed.

The fuel price index rose an annual 9.89 percent in the same week, down from a rise of 10.4 percent on year the previous week.

Rising prices are a huge headache for the Congress-led government, particularly high food prices that may overshadow government efforts to cut spending and the fiscal deficit in a February 26 budget.



An activist from Bharatiya Janata Party (BJP), wearing a headgear and garland made of vegetables, shouts slogans during a protest in New Delhi. Thousands of BJP activists on February 17 staged a protest against the price hike of essential food items.

Climbing food and fuel costs along with a pick up in manufacturing prices are expected to push headline wholesale price inflation (WPI) from 8.56 percent in January to 10 percent by March, according to some analysts and chief statistician Pronab Sen.

Government bonds showed little reaction to the data given that markets have already priced in a rise in the headline inflation to double digits and a 25 to 50 basis point rise in policy rates in April.

In early trade, yield on the 10-year benchmark bond was at 7.89 percent, unchanged from its Wednesday close.

"Going forward, food prices will moderate and non-food prices will start putting more pressure on the WPI," said Atsi Sheth, economist with Macro-Sutra.

"The RBI has already anticipated a fairly high headline number mainly on a low base. They will look at month-on-month increase in manufacturing prices and credit growth figure before taking any monetary action."



CPI activists protest against price hike of essential commodities in Mumbai on February 17.

PRESSURE ON RBI

The central bank is widely expected to raise borrowing rates after it surprised markets last month with a bigger-than-expected rise in banks' cash reserve requirements and given that inflation has already topped its revised end-March forecast of 8.5 percent.

Inflation in manufacturing picked up to 6.55 percent from about 5 percent in December, a sign that inflationary pressures were spreading to other sectors of the economy.

"I do not expect headline inflation to come down near term," said Kevin Grice, an economist with Capital Economics in London.