India food inflation nears 18 percent

By Agence France-Presse

India's food inflation climbed again to hit nearly 18 percent, official figures showed Thursday, days after Premier Manmohan Singh declared the worst of the problem was over.

New figures released by the commerce ministry showed annual food inflation jumped to 17.94 percent for the final week of January, up from 17.56 percent the previous week.

Wrestling down food inflation, running at decade highs, is a key priority for the Congress-led government, whose main electoral backing comes from India's teeming poor -- those most vulnerable to rising food prices.

"Until winter crop supplies come into the market, especially for cereals and pulses, we will have inflationary pressures, but by March we should see some (food price) pressures ease," Shubhada Rao, chief economist at India's Yes Bank, told AFP.

High food inflation, driven by soaring prices for pulses, vegetables and sugar, has given a political boost to opposition parties, which have accused the government of incompetence.

On Wednesday, opposition-led protests over high grocery bills were staged near parliament in New Delhi and in the eastern state of Orissa.

The weakest monsoon rains in nearly four decades affected harvests last year, sending food prices rocketing, with the cost of some staples doubling from a year earlier.

"The worst is over as far as food inflation is concerned," Singh told a meeting of state chief ministers last weekend, adding he was confident the government would "soon be able to stabilise food prices."

The government has said post-monsoon rains have been good, boosting the chances of a better winter harvest, which should reduce food inflation.

The government has sought to tame food prices by selling reserve stocks of wheat and rice in the open market and is allowing duty free imports of white sugar.

Food inflation has driven overall inflation to 7.31 percent, the highest level in 13 months.

Analysts say overall inflation could hit double digits by the end of March especially if the government follows the recommendations of an advisory panel to liberalise fuel prices.

The panel has suggested scrapping price controls for petrol and diesel and raising the subsidised prices of kerosene and cooking gas to help the government reduce its hefty fiscal deficit.

Analysts say, however, such a move could stir a political storm with household budgets already under strain from high inflation.

The central Reserve Bank of India, meanwhile, sought to douse speculation it might raise benchmark interest rates to control inflation.

"Please don't expect any action between now and the next (policy) announcement" due in April "unless there is a completely unanticipated, unwarranted event," central bank deputy governor Subir Gokarn said.

The central bank has said hiking interest rates is an ineffective weapon to tackle food price inflation caused by harvest shortfalls.