Inflation in India driven by supply pressures: RBI

Reuters / Bhubaneshwar February 26, 2011, 14:55 IST

Food inflation in India is largely driven by supply side pressures and the central bank is not responsible for that, the Reserve Bank of India (RBI) governor said on Saturday.

Food inflation is among the highest in Asia despite good harvests and food prices have been in double digits for much of the last year, sparking street protests and keeping pressure on the government

The food price index rose 11.49% and the fuel price index climbed 12.14% in the year to February 12, government data on Thursday showed.

"Food inflation is because of the supply side and RBI (Reserve Bank of India) is not responsible for that. You have to have a supply side response," Duvvuri Subbarao said.

The wholesale price index , the most widely watched gauge of prices in India, rose 8.23% in January from a year earlier, compared with 8.43% in December.

To fight inflation which continues to be stubbornly high in India, the Reserve Bank has already raised rates seven times in the last one year and is expected to raise rates again in March.

"Monetary policy becomes the first line of defence for inflation process... People think that inflation is going to be high and that becomes a self fulfilling prophecy. To break that inflationary psyche the Reserve Bank has to act and that is why we have been acting since last one year," Subbarao said.

Source: Business Standard