While prices of vegetables have moderated in recent weeks due to fresh arrivals, high food prices continue to be a policy headache. (TOI photo)
Official data released on Monday showed the index, rose 7.5 per cent in November, above the previous month's 7 per cent and 7.2 per cent in the November last year. This was also above markets expectations of a 7 per cent increase.
Prices a headache
Food prices continued to exert pressure, rising an annual 20 per cent, while vegetables shot up 95.3 per cent year-on-year and onion prices rose an annual 190.3 per cent in November. While prices of vegetables have moderated in recent weeks due to fresh arrivals, high food prices continue to be a policy headache.The increase in food prices in November was the fastest since June 2010. In the past nine years, food inflation has averaged 10 per cent compared to below 5 per cent in the preceding decade.
The data is likely to put more pressure on the government to tame stubborn price pressures, which have been identified as a key reason for the Congress's rout at the recent state elections. Household budgets have been upset, while the increase in interest rates has led to larger outgo on housing and car loans.
The increase i n wholesale inflation rate comes against the backdrop of a surge in retail prices, which rose over 11 per cent in November, largely on the back of soaring vegetable and food prices. The government also revised upwards the wholesale inflation data for September to 7.1 per cent from the previously reported 6.5 per cent, highlighting the entrenched price pressures in the economy.
Interest rate hike likely
RBI, which has said inflation remains at uncomfortable level, is expected to raise interest rates again. Inflation has emerged as a vital policy challenge and the central bank has said taming price pressures remains its top priority. Economists said they expect the central bank to raise key rates on December 18.
"While food inflation may ease in coming months as supply conditions improve, underlying inflation is susceptible to upside risks as inflation expectations are sticky and may continue to drift up," said Leif Eskesen, chief economist f or India and Asean at HSBC. "This means that the RBI will have to maintain a hawkish stance and we believe there is a good chance that it will hike the repo rate this Wednesday by another 25 basis points," he said.
Indian industry has been clamouring for a cut in interest rates to boost growth, which has slowed to a decade low of 5 per cent in 2012-13 and is in line for a repeat in the current financial year.
Food inflation has remained consistently high for the past three years, prompting knee jerk reaction from the government. There has been limited progress on wider agriculture market reforms and on easing infrastructure bottlenecks. The government has blamed the states for not doing enough to check high food inflation. Economists say the high fiscal deficit of the Centre acts as a roadblock to bring down prices and interest rates.
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