Food Inflation Back up to Double Figures

20 October 2011 - Which Way to Pay

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Food Inflation Back up to Double Figures

Today saw the inflation rate on food across India return to double figures. This was largely driven by hikes in the price of vegetables as well as other staples and creates a whole host of new problems for the struggling government. Throughout the week beginning with the 2nd of October, food inflation escalated to 10.6% when compared with the same week from a year earlier.

The data, provided by the commerce ministry, is particularly high due to increases in the cost of vegetables, which had risen by 17.6% when compared with prices for the same week last year. Fruit prices were also elevated, seeing a year on year increase of over 12%. The week commencing with the 25th September the annual food inflation rate was at 9.32%. The annual inflation rate for the month stood at 9.72%.

As food prices get out of hand, the coalition government led by Congress is desperate to get costs under control amid the recent corruption scandals as a voter backlash seems increasingly likely at the state election next year. The rising food prices present the biggest problem to the millions of poor Indian citizens, who are also the largest support demographic for the Congress party.

Since March last year, the Reserve Bank of India has increased interest rates twelve times in a bid to contain inflation, but the target level of 4 5% has not been reached. The high rates have slowed the economy, and regardless of warnings from various business leaders over the damage another rate hike could cause, it seems that the central bank may once again increase interest rates next week.

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