New Delhi: Annual food inflation eased to its lowest level in 18 months in the year to November 20, pressed down by lower prices of potatoes, pulses and vegetables, in line with policymaker forecasts.
Food inflation eased for the seventh straight week under a new data series, pushed down by normal monsoon rains and new crop arrivals in the market. It rose to more than 17 per cent in January which had helped drive headline inflation to double digits earlier in the year and prompted the central bank to raise key rates.
Food items have a weightage of just over 14 per cent in the wholesale price index, the most widely watched gauge of prices in India.
"The food inflation even at this level is still very high," said N.R. Bhanumurthy, economist with the Delhi-based policy think-tank NIPFP.
"It has come down maybe because of good summer crop which has in turn driven down (inflationary) expectations."
Bhanumurthy said he expects food inflation to ease further and settle at around six per cent by the end of the fiscal year ending March 2011.
The food price index in the year to November 20 rose 8.60 per cent, compared with 10.15 per cent in the previous week, government data on Thursday showed.
The benchmark 10-year bond yield rose 1 basis point, briefly after the data, to 8.12 per cent.
Food inflation is at its lowest since July 2010 under a new data series introduced by the government earlier in the year. Under the old series with a different base year, it is at its lowest since May 2009, said a government statistician.
Fuel price inflation eased to 9.99 percent in the latest week, compared with the prior week's 10.57 per cent, while the primary articles price index was up 12.72 per cent compared with an annual rise of 13.38 per cent a week earlier.
Subir Gokarn, a deputy governor of the central bank, said on Wednesday that the Reserve Bank of India (RBI) has a limited role in containing food inflationary pressures and that they need supply-side measures by the government.
"We have come to the conclusion that there is a structural driver to food inflation. In this case, the appropriate approach is to address the supply side," Gokarn said.
Kaushik Basu, the Chief Economic Adviser to the finance ministry had forecast on Tuesday that food inflation would ease to below nine per cent this week.
India's wholesale price index rose 8.58 per cent in October from a year earlier - its lowest in 10 months - compared with 8.62 per cent in September.
Analysts polled by Reuters expect the RBI, which reviews policy on December 16, to raise rates by an additional 25 basis points by end-March, in its efforts to squeeze inflation back to its target of 5.5 per cent by then.
The RBI has so far raised its key lending and borrowing rates by 150 and 200 basis points respectively since mid-March to anchor inflationary expectations.