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Thursday, March 18, 2010

Fuel inflation accelerates, food inflation eases

India's food price inflation eased in early March but fuel inflation continued to rise, adding upward pressure on headline inflation and maintaining the case for the Reserve Bank to raise rates at its April policy review.
Data released on Thursday showed the food price index rose 16.30% in the year to March 6, lower than an annual rise of 17.81% in the previous week, continuing a downward trend for the second straight week.
But India's monthly wholesale price inflation (WPI) stood at 9.89% in February, and the finance minister has said it could cross into double digits in March.
Steepening inflation has seen markets pricing in a 25 to 50 basis point rate hike in April.
Policymakers in India have said food inflation, which they blame on supply shortages, would moderate as the winter-harvested crop reaches markets.
However, a decision in February to raise motor fuel prices has also stoked inflation. The fuel price index rose 12.68% in the year to March 6, up from an annual rise of 11.38% in the previous week.
The benchmark 10 year bond was unchanged at 7.92% on the news.
Key policymakers have said that headline inflation would moderate over the next two months.
The Reserve Bank faces the dilemma of balancing the federal government's need to borrow a record USD 100 billion in the next fiscal year with taming inflation.
Rising prices have sparked opposition-backed street protests and made India's government reluctant to push through reforms such as relaxing fuel price controls, even though the ruling Congress party faces no risk of losing power anytime soon.

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