Surging food costs have driven India into inflation faster than expected, adding pressure on the central bank to speed an exit from easy monetary policy and prompting further government steps to curb price rises. India's wholesale price index (WPI) rose by 0.12 percent in the year to September 5, compared with the previous week's 0.12 percent fall and analysts' forecasts for a 0.08 percent decline, data on Thursday showed.
The food articles sub-index rose an annual 15.4 percent, up from the previous week's 14.8 percent rise, as a drought parched nearly half of India's districts, hurting summer crops. In its latest move to check soaring food prices, India's cabinet on Thursday approved an extension of limits on stocks that can be held by traders of sugar, vegetable oil, lentils and rice until September 2010.
"Inflation is already positive again and the Reserve Bank of India faces a real tough task. The governor has said he wants to keep interest rates low till the economy recovers fully, but inflation is galloping and being responsible for inflation, it can't ignore it," said Amol Agarwal, economist at IDBI Gilts.
Markets were unperturbed by the latest WPI data, with bond yields little changed from before the release and stocks closing 0.20 percent higher despite a 4.45 percent drop for the biggest index constituent, Reliance Industries, after it sold $660 million worth of shares. High food prices pose a dilemma for the RBI, which can do little about price pressures caused by supply-side bottlenecks in Asia's third-largest economy.
Meanwhile, the effect of soaring fuel and commodities prices a year ago is poised to recede in coming weeks, as the WPI peaked in the first two weeks of September 2008. If prices held steady between now and the end of October, inflation would still reach 3 percent. India's monsoon remained deficient as the season enters its final weeks, with rains 41 percent below normal in the week to September 16, and 21 percent below average since the start of the season on June 1.. Reservoir levels improved, however.
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