India Food Inflation Over 10% Despite Many Rate Hikes

A dozen interest-rate hikes since March 2010 have failed to check India’s food inflation which climbed above 10% again Thursday on surging prices on vegetables and other staples.

Food inflation rose to 10.60% for the week ending October 8 from the same period of 2010, according to Commerce Ministry data. The main culprits were vegetable prices soaring 17.6% and fruit prices up over 12 percent.

Annual food inflation had been 9.32% the previous week. The latest data poses a serious threat to the ruling Congress party’s prospects in next year’s key state elections. It has already been weakened by a series of corruption scandals during the past year.

The overall annual inflation rate is at 9.72% for the month of September. The poor who make up the vast majority of India’s 1.3 billion population are the hardest hit by inflation. They are the Congress party’s main support base.

In an effort to tame inflation to the target level of four to five percent, India’s central bank raised interest rates a dozen times since March 2010. Another rate hike is now expected next week despite warnings from the business community that the move could slow economic growth too much amid ongoing global financial uncertainties.

Last year India’s economy grew 8.5%. For the fiscal year ending in March 2012 the government is projecting “close to eight percent”.

The government is hoping that food inflation will subside after this year’s abundant rains produce a bumper harvest.

“The full impact of the monsoon will be felt in November and December,” said C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council. “I expect food inflation to come down by then and I would expect overall inflation could be around seven percent by next March.”