Inflation to cool by next month, says Ahluwalia
08 Jan 2011
The recent spurt in food inflation is due to supply constraints, but prices should cool by February, deputy chairman of the Planning Commission Montek Singh Ahluwalia said on Friday.
Annual food inflation accelerated for the fifth straight week in late December to the highest in more than a year, reinforcing fears it has spilt over to broader prices, and cementing expectations of an interest rate hike by the Reserve Bank of India in its 25 January policy review.
The food price index rose 18.3 per cent in the year up to 25 December compared with 14.4 per cent rise in the previous week. Onion prices, a key food staple for Indian families, rose over 23 per cent over the week to 25 December.
"The current spike in food inflation that you are seeing should be over by February," Ahluwalia told Reuters in an interview.
Food articles have a weight of 14.34 per cent in the wholesale price index, India's most widely watched gauge of inflation.
Headline inflation had eased to a 12-month-low of 7.48 per cent in November after hitting 8.58 per cent in October. The Reserve Bank of India (RBI) expects the headline inflation to ease to 5.5 percent by March, but Ahluwalia expects the reading for March to be around 7 per cent.
The RBI, which raised interest rates six times in 2010, is expected to increase rates by at least 25 basis points on January 25, a Reuters poll showed on Wednesday. Analysts forecast rates to rise by 75 basis points in 2011.
