Food inflation slows to three-month low

Bloomberg/New Delhi

An index measuring wholesale prices of agricultural products including lentils, rice and vegetables rose 9.52% in the week ended February 26 from a year earlier, the commerce ministry said in a statement in New Delhi yesterday. The gauge showed a 10.39% increase in the previous week.

India, which has increased its repurchase rate seven times in the past year to 6.5%, may face further pressure as rising oil costs threaten to spur inflation across Asia. While food and grain will move in a "downward direction,” the nation may be forced to raise fuel prices should crude remain above $100 a barrel for some time, Chakravarthy Rangarajan, the prime minister’s chief economic adviser, said this week.

"Food prices are showing a downward trend because of the base effect and due to increased supplies,” Jay Shankar, chief economist at Religare Capital Markets Ltd in Mumbai, said before the report. Still, he expects the central bank to raise rates by at least a quarter of a percentage point this month.

The Bombay Stock Exchange’s Sensitive Index fell 0.7% as of 11.40am in Mumbai.  The decline in food prices was led by potatoes, which fell 9% in the week to February 26 from a year earlier and lentils, which declined 3.9%.

All five economists surveyed by Bloomberg News expect the Reserve Bank of India to increase the repurchase rate to 6.75% on March 17.

India’s benchmark wholesale-price inflation probably slowed for a second month to 7.8% in February, according to the median estimate in a Bloomberg News survey of 15 economists.

"Uncertainty in the oil price is a serious issue which we shall have to address,” Finance Minister Pranab Mukherjee, 75, said last week.