India Food-Inflation May Slow After Near 18% Gain for Six Weeks
India’s food-inflation rate stayed at around 18 percent for a sixth week, a sign that farm prices may have peaked and will start declining soon.
An index measuring wholesale prices of lentils, rice, vegetables and other food articles compiled by the commerce ministry rose 17.81 percent in the week ended Feb. 27 from a year earlier after a 17.87 percent gain the previous week, according to a statement in New Delhi today.
New crops of wheat, sugar and lentils will ease pressure on farm prices, Montek Singh Ahluwalia, a top economic adviser to Prime Minister Manmohan Singh, said this week. Sugar prices in India have dropped 19 percent from a record on Jan. 8 as production rose and the government took steps to boost supplies.
“Food inflation is already showing some early signs of rolling over,” said Rajeev Malik, a Singapore-based regional economist at Macquarie Group Ltd. “Monsoon rainfall remains a key risk that is too early to call.”
Agriculture prices surged in India after last year’s monsoon rains between June and September, the main source of irrigation in the country, were the weakest since 1972.
To ensure enough supplies, the government extended duty- free purchases of white sugar until Dec. 31 and banned export of wheat and rice.
Food Output
Sugar buyers in India, the world’s biggest user, may renegotiate some import contracts as a decline in domestic prices to a four-month low makes overseas purchases unprofitable, Michael McDougall, a senior vice president at Newedge USA, told Bloomberg News on March 5.
Sugar output in India, the world’s biggest buyer of the commodity, will be higher than forecast as cane yields improve, the Indian Sugar Mills Association said March 9. Production may total 16.8 million metric tons in the year ending Sept. 30, up from an earlier estimate of 16 million tons, the group said.
The wheat harvest will also reach a record this year and the government may consider lifting a ban on its exports, Indian farm minister Sharad Pawar said March 4 free credit report and score.
Even so, India’s benchmark wholesale-price inflation may accelerate to 9.67 percent in February, the highest in 16 months, according to the median estimate of 11 economists in a Bloomberg News Survey. The commerce ministry will release the inflation data on March 15 at noon in New Delhi.
Excise Tax
Sixty percent of the January inflation reading of 8.56 percent was contributed by food prices.
Food inflation “won’t be a cause for concern” in the next fiscal year starting April 1, Ahluwalia said March 9.
“Food-price inflation has moderated over the last couple of weeks,” central bank Governor Duvvuri Subbarao told reporters in Basle, Switzerland, on March 8. He said manufacturing inflation is showing signs of accelerating though.
Subbarao said he expects “some impact” on inflation after Finance Minister Pranab Mukherjee raised excise tax on fuel on Feb. 26 to mobilize revenue and cut the budget deficit.
Mukherjee imposed a one-rupee levy on every liter of gasoline and diesel while increasing the excise tax on almost all products to 10 percent from 8 percent.
The yield on India’s 10-year government bond touched 8.00 percent this week, the highest in 17 months, on concern inflation will erode the value of the debt’s returns. The yield has gained 36 basis points since Feb. 1.
“The increase in oil prices will push the inflation rate to double digits by March,” said Rahul Bajoria, an economist at Barclays Capital in Singapore.
Companies such as Steel Authority of India Ltd., the nation’s second-largest producer, and Maruti Suzuki India Ltd., India’s biggest carmaker, raised prices after the taxes were raised.