India's food inflation soars 19 percent

(AFP PHOTO/Manpreet ROMANA)

Indian food prices have accelerated by 19 percent in a year, figures Thursday showed, driven by the driest monsoon in nearly four decades that has hit farm output.

Prices of such staples as potatoes have more than doubled from a year ago while pulses were up 42 percent, hitting India's hundreds of millions of poor the hardest.

The wholesale food price index climbed by 19.05 percent for the week ended November 28 from the same period a year ago, according to commerce ministry figures.

Food price rises have been fuelled by the worst annual rainfall since 1972 which hurt crop production in the country of nearly 1.2 billion people.

India's central bank is facing a tricky balancing act in fighting inflation and keeping the country's economic recovery on track, economists say.

Earlier in the week, central bank Governor Duvvuri Subbarao called monetary policy "an ineffective instrument" to tame food prices but added such action might be needed to curb inflationary expectations.

"If inflationary pressure persists for a long time it can fuel inflation expectations and monetary policy will have to take a nuanced view on this," he said.

Overall wholesale price inflation, which is released on a monthly basis, still is relatively benign at 1.34 percent.

But the central bank forecasts inflation will accelerate to six to 6.5 percent by the end of the fiscal year in March, fuelled by food price inflation and an economy that is showing a robust recovery from the global crisis.

India posted much faster-than-expected 7.9 percent economic growth in the quarter to September.

Subbarao calls inflationary pressures an "urgent concern" but has pledged the central bank will not "exit from the accommodative monetary policy unless we are assured recovery is secure".

The central bank has cut interest rates six times since October 2008 with its benchmark repo rate at which it lends to commercial banks now at a record low of 4.75 percent.

Economists say the bank could raise interest rates as early as next month in a bid to tame inflation.

Ruling Congress party president Sonia Gandhi, whose party was elected on a platform of helping the poor, said this week "price rises of essential commodities continues to be a matter of highest concern to us".

pmc/bgs/ft