India's food inflation hits 4-month high

NEW DELHI: India's food inflation accelerated to 9.9 percent in end-July, the highest since mid-March, suggesting the central bank would continue monetary tightening despite uncertainty over the global slowdown.

India's central bank has raised interest rates 11 times since March 2010 to tame headline inflation, which quickened to 9.44 percent in June.

Almost all forecasts expect headline inflation to remain above 9 percent until October.

Analysts said the central bank may continue monetary tightening in the coming months until inflation peaks, despite increasing uncertainty over a global slowdown after the downgrade of US debt by the Standards & Poor's last week.

"The food inflation was higher than expected. Now the expectation of a pause in rate hike has abated a little bit in the September policy," said Debendra Dash, a fixed-income trader with Development Credit Bank.

The central bank, which is scheduled to meet on Sept. 16 for next policy review, raised rates by a steeper-than-expected 50 basis points last month.

India's food price index rose 9.90 percent and the fuel price index climbed 12.19 percent in the year to July 30, government data on Thursday showed.

In the previous week, annual food and fuel inflation stood at 8.04 percent and 12.12 percent respectively.

"Food inflation is likely to continue to display volatility in week-on-week terms, particularly on account of perishable items, namely fruits and vegetables," said Aditi Nayar, an economist at the rating agency ICRA.

The yields on 10-year benchmark bond rose to 8.24 percent from 8.19 percent previous close, after the food inflation data release.

Copyright Reuters, 2011