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India's inflation rate up, drought impact weighs

India's inflation rate rose sharply in the week ending August 10 mainly on the back of higher food prices, a trend analysts said on Sunday was likely to continue as the country suffers its worst drought in 15 years.

Year-on-year inflation, measured by the wholesale price index, rose to 3.03 per cent in the week ended August 10 compared with 2.66 per cent in the previous week, commerce and industry ministry data showed on Sunday.

Inflation in coming weeks is likely to be fuelled as the drought pushes up prices of daily products, especially food products and vegetables, analysts said.

"The drought would lead to a shortage of agricultural products and an anticipation for higher prices pushing up inflation," said D K Srivastava with the independent think-tank National Institute for Public Finance and Policy.

"I expect it to creep to 3.5-4.0 per cent in the next few weeks."

The June-September southwest monsoon -- the lifeline of agriculture-dependent India -- has produced about 24 per cent less rain than normal affecting crops in key grain-bowl states.

A state-run research body, the Indian Council for Agricultural Research, forecast India's winter rice crop would fall 12 per cent due to the erratic rains.

But the government said crop losses would not be known until October.

Agriculture accounts for nearly a quarter of gross domestic product and employs 70 per cent of the more than one billion population, which forms a huge market for Indian companies.

"Prices of manufactured products is also bound to increase as forty per cent of the industry depends on agriculture for its inputs," said D H Pai Panandikar, president of the RPG Foundation, a private economic think-tank.

The effects of drought have already pushed prices of pulses, fruits and edible oils higher. The index of manufactured products, which is made up of textiles and engineering items, rose 0.4 per cent to 148 from 147.4 in the previous week.

The index for food products rose 0.3 per cent to 154.3 as against 153.9 in the previous week.

The index for non-food articles which reflects prices of fodder, groundnut seed and other commodities rose 1.3 per cent to 162.9 compared with 160.8 in the previous week.

India's inflation has hovered around 20-year-lows for the past six months as demand for goods weakened due to an economic slowdown. Record high foodgrain stocks have also kept a lid on food prices.

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