Food price rebound = March inflation may be nosing 11%

Food inflation has rebounded more than a point-and-a-half in a week. And fuel price inflation remains at elevated levels.
What does that do to wholesale price index-based inflation for March?

The street says double-digit is a no-brainer, and the actual headline number may be nearer 11% than 10%. Government is scheduled to relase data on March inflation on April 15.

Data released by the ministry of commerce and industry show food prices up 17.7% in the week to March 27, compared with same period last year. Pulses have rocketed 32.6%.

The fuel and power index remains unchanged over the week before at higher levels of 12.7% annually.

“We expect inflation for March to be around 10.7% with food prices being the major driver,” said Sachchidanand Shukla, economist, Enam Securities.

Saugata Bhattacharya, senior vice president (business and economic research), Axis Bank sees such price levels leading to further monetary action by Reserve Bank of India.

Some say it may be more than the street expectations of 25 bps.
RBI had hiked repo and reverse repo rates by 25 basis points each on March 19, 2010.

“We expect another hike of 25 basis points in both rates,” said Enam’s Shukla.

“Inflation will be in double digits for March and April after which it will start easing,” said Sujan Hajra, chief economist and broking house Anand Rathi.

Food prices which are the major contributor to high levels of overall inflation will continue to remain high.

“Even a good rabi harvest is not going to bring them down significantly because demand continues to stay high,” said Indranil Pan, chief economist, Kotak Mahindra Bank.
Early estimates on monsoon are that it will not be as bad as last year, so one can expect food prices to come down gradually, he added.

Inflation was in the double-digit zone the last time between June and October 2008. The base year then was 1993-94.
The headline number touched a high of 12.91% in August.