Food inflation hovers around 18%

India’s Food Inflation rose to 17.87% in the week ended February 20, as compared to 17.58% in the previous week, data released by the Government showed. The WPI index for the Food Articles group declined by 0.4% to 285 points, as nearly all key items including cereals, vegetables and fruit became cheaper. Inflation for the Primary Articles group declined marginally to 15% in the week under review against 15.84% in the previous week. Inflation for the Non-Food Articles group rose to 13.77% from 12.78% in the previous week.

Finance Minister's decision to hike duties on petroleum products prompted India Inc. to raise prices. Truck operators increased freight rates while companies belonging to the Steel, Airlines and Cement sectors too followed suit. Analysts expect the fuel price hike to raise food prices further in the near future, especially those of the perishable items.

For the week ended February 20, inflation for the Fuel & Power group was partially lower at 9.59%, compared to 9.89% a week ago. The effect of the hike in fuel prices will be visible in a fortnight's time. The WPI-based monthly inflation is expected to touch double-digits by March-end. It has already overshot the RBI's FY10-end forecast of 8.5%.

Meanwhile, yields on the benchmark 10-year government bond spurted to inch closer to the 8% mark. Traders expect the Government borrowing schedule for the fiscal year 2010-11 to provide direction for the bond market in the near term. It may be recalled that the Finance Minister announced record borrowing of Rs4.57 trillion while unveiling the Union Budget, on Feb. 26. Traders also expected cash outflows towards advance tax payments in mid March to squeeze liquidity. About Rs400-500bn are expected to flow out from the banking system when companies make the tax payments.