Food inflation eases;fuel prices continue to rise

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India's annual food price inflation eased in mid-April, but fuel price inflation quickened maintaining an upside pressure on the wholesale price index that could prompt further monetary tightening by the central bank.

The food price index rose 16.61%  in the 12 months to April 17, lower than an annual rise of 17.65%  in the previous week, government data showed on Thursday.

The fuel price index rose an annual 12.69% , marginally higher than the previous week's reading of 12.45% .

Top policymakers including Finance Minister Pranab Mukherjee have said this week that there were clear indications that food price inflation was softening on forecasts of a good winter crop harvest and a normal monsoon this year, which in turn would cool down the headline inflation.

"I don't think the RBI will hold back on rates even if food and fuel (prices) peak because manufacturing inflation is still a big worry and inflation is out of the comfort zone," said N.R. Bhanumurthy, professor at New Delhi-based think-tank National Institute of Public Finance and Policy.

Wholesale price inflation in March touched a 17-month high of 9.9% , prompting the Reserve Bank of India (RBI) to raise rates in April for the second time in as many months.

RBI Governor Duvvuri Subbarao said rising prices for food, fuel and wages have made inflation more of a generalised and demand-side problem.

Much of the country's inflationary pressures were initially on the supply-side as a result of the 2009 monsoon failure that pushed up food prices.

But summer monsoon is likely to be normal this year, with rainfall expected to be 98%  of the long-term average, the government said last Friday. The RBI has forecast the headline inflation to ease to 5.5%  at end-March 2011 on normal monsoon.