Food inflation continues to rise in late January

India's annual food inflation  rose for the third straight week, threatening to drive up the headline inflation into double-digits and raising prospects of more street protests and political pressure on the government.                                           

The food price index rose 17.94% in the 12 months to Jan. 30, higher than an annual rise of 17.56% in the previous week, data released on Thursday showed.                                           

The fuel index, which rose an annual 10.44% in the same week, has risen about 11% since the end of March 2009, following an upswing in world crude prices amid signs of a global recovery.                                           

Analysts expect higher food prices, due to a poor harvest after the worst monsoon in 37 years, to push up the wholesale price index into double digits by March from 7.3% in December, above the Reserve Bank of India's (RBI) revised forecast of 8.5%.                                            

However, prime minister Manmohan Singh last week said India's farm output in 2009-10 would be higher than initial estimates, raising prospects that food inflation would soon be controlled.                                           

The government also decided to constitute an official panel to recommend long-term measures for increasing agricultural production and for reducing the gap between farm gate and retail prices.                                                                                   

Protests
While rising food inflation is seen pressurising the RBI to take sterner measures like raising interest rates ahead of its April policy review to prevent its broader break-out, it may also distract the government from pushing economic reforms.                                           

On Wednesday, opposition-driven protests over rising food prices erupted near India's parliament and in the east of the country, even as the government considers a proposal to liberalise fuel prices.                                           

A government panel has advised eliminating price controls for gasoline and diesel and an income-linked rise in kerosene and cooking gas prices. But analysts say any hike in petrol and diesel prices would further drive broader inflation.