Soaring food prices drive India's inflation to a six-month high
Soaring food prices drive India's inflation to a six-month high

Domestic consumer inflation likely rose further in March due to higher food prices as unseasonal rains damaged crops, pushing up the prices of vegetables and fruits, economists say.

"We expect consumer price index (CPI) inflation to have picked up to 5.6 % y/y in March from 5.4% y/y in February as prices of food, especially vegetables and fruits, rose due to unseasonal rainfall damaging crops," said Standard Chartered in a note.

Potato and onion prices declined m/m, while prices of other vegetables such as tomatoes increased 6% m/m after having declined for 10 straight months, it added.

Reaching a record low of 3.3% in November, last year on the back of declining crude oil prices, an uptrend in inflation has been noticed since then.

Retail inflation edged up to 5.37 percent in February against 5.19 percent in January, on the back of increase in prices of food items, including vegetables and beverages.

The Reserve Bank of India (RBI) kept policy rates unchanged at last week's meeting, waiting to see inflation developments before cutting rates. The central bank expects inflation to remain at current levels in the second quarter, before going up to 5.8% by the end of the year.

"We estimate that unseasonal rains could push CPI inflation close to 6 per cent in second quarter of 2015 (April-June period), versus our current estimate of 5.2 per cent, indicating a transitory shock of 80 bps on CPI inflation," DNA said citing a Nomura report.

Many analysts expect the RBI to cut rates in June once a clear picture of inflation emerges by then. The central bank is scheduled to meet on 2 June.

Nomura said that the projected rise in inflation is transitory and should not be a concern for the Reserve Bank of India (RBI).

Further, the Japanese brokerage firm says that pattern of unseasonal rains in the past four years indicates there are upside risks to food inflation, and therefore CPI inflation, in the next three months.

"We expect inflation to average around 4.5% in 1H FY15-16, and rise to around 5.5% in 2H FY15-16," said Barclays Capital in a recent note.