India : Food Prices Fall

NEW DELHI – India's food inflation eased sharply in the week ended Jan. 29 as vegetable prices cooled, raising hopes of a rapid decline in price pressures.

The wholesale price index for food articles fell 2.8% to 186.9 from 192.2 the previous week, according to data issued Thursday by the Ministry of Commerce and Industry.

The annual inflation rate dropped to 13.07% from 17.05% in the preceding week.

Vegetable prices in the week ended Jan. 29 were down 17% from the previous week, while onion prices were off 21%.

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An Indian vendor displayed vegetables at a market in Siliguri on January 25, 2011.

The data will temper expectations of more aggressive monetary tightening by the central bank, though economists expect some action will still be taken given that inflation remains high.

Government bond prices extended gains with the most-traded 8.13% bond due in 2022 last changing hands at 99.53 rupees ($2.19), compared with 99.45 rupees before the data release.

Namrata Padhye, an economist with IDBI Gilts, said the decline was due to various government measures aimed at boosting market supplies.

The federal government banned exports of onions, arranged for its imports and asked two state-backed cooperatives to sell the vegetable at subsidized rates while also urging provincial governments to clamp down on hoarders.

But there is still a risk of escalation in price pressures as global commodity prices are on the rise.

"The inflation worries are not yet out of the way as globally there is rising pressure on energy and food prices due to political uncertainty and natural calamities," she said.

Food prices in India spiraled as unseasonal rains late last year damaged some standing crops and choked market supplies.

Surging prices of onions, a staple in Indian cuisine, led to a public outcry and political protests against the government. Inflationary pressures have also intensified because growing prosperity has caused a shift in Indian dietary habits to high-protein foods.

But prices are now easing thanks to the government's steps and steadily replenishing market supplies due to good seasonal rainfall.

Apart from global commodity prices, risks to inflation also stem from non-food articles, which continue to see intense price pressure.

Prices of non-food articles rose 2.5% in the week to Jan. 29.

Economists said that, despite the easing in food prices, inflation still remains well above the central bank's comfort zone and will likely lead to more monetary tightening.

Samiran Chakrabarty, head of research at Standard Chartered Bank, expects the Reserve Bank of India to continue raising policy rates at its next two rate-setting meetings. Namrata Padhye of IDBI Gilts also expects a 0.25 percentage point increase by March.

All eyes are now on January's inflation data due Monday, which will give cues on the course the Reserve Bank of India may take.

The central bank has raised its lending and borrowing rates seven times since March 2010 as it struggles to bring inflation under control.

Thursday's data showed the index for primary articles fell 1.4% to 191.8 in the week to Jan. 29. It was up 16.24% from a year earlier after climbing 18.44% in the previous week.