Elevated food prices keep India inflation high
Business
Cereal prices rose 7.60pc higher year-on-year in Feb compared to 7.83pc in the previous month
NEW DELHI (Reuters) – Indian annual retail inflation in February rose at a faster than expected pace due to elevated food prices, government data showed on Tuesday.
Annual retail inflation eased slightly to 5.09 per cent in February from 5.10pc in January, but was higher than 5.02pc forecast by a Reuters poll of 42 economists.
Food inflation, which accounts for nearly half of the overall consumer price basket, rose 8.66pc in February, compared with an 8.30pc rise in January.
Despite retail inflation being within the mandated band of 2pc-6pc, uncertainties in food prices have worried policymakers.
Last month, the Reserve Bank of India (RBI) left its rates unchanged and signalled it would not lower interest rates until it achieves inflation of 4pc on a durable basis.
It expects inflation of 5.4pc for the current fiscal year that ends on March 31, and has projected 4.5pc for the next fiscal year.
"It will take a few more months before it reaches the RBI’s 4pc long-term target," said Thamashi De Silva from Capital Economics. "We think that food price inflation will drop back only slowly over the coming months."
Prices of cereals were 7.60pc higher year-on-year in February compared to 7.83pc in the previous month, while vegetable prices rose 30.25pc compared to 27.03pc in January, data showed. Pulse prices rose nearly 19pc year-on-year in February.
Core inflation, which strips out volatile food and energy prices, is estimated at 3.3pc-3.37pc in February, compared with 3.6pc in January, according to two economists.
The Indian government does not release core inflation figures.
Core inflation has been falling despite strong growth in Indian economy.
The economy expanded 8.4pc in the final three months of December, its fastest pace in one-and-a-half years. The government revised its growth estimate for the current fiscal year to March 31 to 7.6pc from 7.3pc.
"Weak core inflation at a time of strong growth is a conundrum - the only reason could be the weak input price growth.
Expect a status quo on policy rates in near term," said Devendra Kumar Pant, economist at India Ratings.
