India Food Prices Climb 19.95%, the Most in 11 Years

Discussion in 'Wall St. News' started by S2007S, Dec 21, 2009.

  1. S2007S


    India Food Prices Climb 19.95%, the Most in 11 Years

    By Kartik Goyal and Manish Modi

    Dec. 17 (Bloomberg) -- India’s wholesale food prices rose at the fastest pace in eleven years, making it more likely that the central bank will raise borrowing costs to curb inflation.

    An index of food articles compiled by the commerce ministry increased 19.95 percent in the week ended Dec. 5 from a year earlier, following a 19.05 percent gain in the previous week. A measure of fuel and electricity prices rose 3.95 percent, the ministry said in a statement in New Delhi today.

    Policy makers in Asia have started to exit monetary stimulus as the global economic recovery causes the focus to shift from reviving growth to fighting inflation. Australia and Vietnam have already begun raising interest rates as inflation accelerates across Asia, with China’s consumer prices rising for the first time in 10 months in November.

    “When growth is subdued, inflation can be ignored,” said Sonal Varma, a Mumbai-based economist at Nomura Holdings Inc., Japan’s largest brokerage. “However, with both growth and inflation surprising on the upside, we believe that a policy action is imminent.”

    India’s economy expanded 7.9 percent in the three months to Sept. 30 from a year earlier, the fastest pace in 1 1/2 years, giving policy makers room to shift their focus to soaring food inflation that threatens to undermine the popularity of Prime Minister Manmohan Singh. Singh got re-elected this year on promises to alleviate poverty in a nation where about 800 million people live on less than $2 a day.

    Parliament Disruption

    Opposition lawmakers yesterday accused the government of being ineffective in tackling soaring food prices and disrupted parliament, forcing the speaker of the lower house to adjourn for the day.

    A panel of Indian lawmakers said in a report presented to parliament today that the government “failed to intervene” in a timely manner to address this “burning issue.” The standing committee of finance demanded a probe into the surge in sugar prices and suggested developing a mechanism to provide food items directly to consumers to overcome hoarding.

    The central bank may tighten monetary policy to help contain a spillover from food-price inflation after gauging prices in December, Chakravarthy Rangarajan, economic adviser to the prime minister, said Dec. 15. The Reserve Bank of India is scheduled to review interest rates on Jan. 29.

    Inflation is accelerating across Asia as the region emerges from the worst global recession since World War II. Consumer prices in Pakistan rose 10.51 percent in November from a year earlier and Sri Lanka’s inflation quickened to a six-month high.

    Action Needed

    India’s inflation is accelerating as the weakest monsoon since 1972 and floods in some parts of the country hurt farm output and caused shortages. Varma expects inflation to accelerate to 8 percent by March 31, more than the central bank’s 6.5 percent estimate.

    Reserve Bank Governor Duvvuri Subbarao said last week that action may be needed to stabilize inflation expectations if food-price increases persist for “a long time.” The central bank could reduce liquidity or raise policy rates, Rangarajan said Dec. 15.

    Benchmark 10-year bond yields were unchanged at 7.68 percent after the food price report, according to the central bank’s trading system.

    Potato prices more than doubled in the week ended Dec. 5 from a year earlier, vegetable costs climbed 41.09 percent, the price of pulses rose 40.1 and wheat gained 13.9 percent, today’s report showed.

    Policy Tightening

    Subbarao started to withdraw India’s monetary stimulus in October by ordering lenders to put a greater proportion of deposits in government bonds, even as he kept the reverse repurchase rate unchanged at 3.25 percent since April.

    “Rising inflation tends to immediately fuel expectations of policy tightening,” said Siddhartha Sanyal, an economist at Edelweiss Capital Ltd. in Mumbai. “Irrespective of whether RBI touches first the repurchase rate or the cash reserve ratio, it will try to ensure that the impact on lending rates is not much,” to protect growth.

    India releases weekly inflation data for wholesale food and fuel prices and an aggregate monthly wholesale index, which rose 4.78 percent in November, the most in 10 months.
  2. Too bad they can't eat their newly bought gold bullion :cool:
  3. Eat it?.....No! Drink it?....Maybe! :cool:
  4. India uses silver leaf in their candies, does it not? Not sure about gold.
  5. America has seen 50% inflation in the last seven years, so I see nothing remarkable about 20% unless it was this month alone.
  6. Ahhh :cool:
    Not my problem.
  7. risky63


    i wonder when they'll choose between cow or neighbor?
  8. sheesh you know nothing about us Indians.

    My neighbour IS a cow !!

    easy choice :D:D