Food inflation eases; RBI to stay hawkish

A farmer harvests a rice paddy crop on the outskirts of Agartala, Tripura, May 29, 2010.

NEW DELHI (Reuters) - India's food inflation eased and fuel inflation notched up in mid-July, but the data is unlikely to change the Reserve Bank of India's (RBI) decisive move towards stamping down on double-digit inflation.

The Reserve Bank of India (RBI) had on Tuesday raised interest rates more forcefully than expected and said the balance of its policy stance had shifted to containing double-digit inflation and anchoring inflationary expectations.

With the RBI lifting its headline inflation projections for the year to end-March to 6 percent, economists now expect a more aggressive tightening than earlier foreseen.

Data released on Thursday showed the food price index rose an annual 9.67 percent in the week to July 17, compared with the previous week's increase of 12.47 percent, with prices of cereals, rice and vegetables falling on the week.

The fuel price index rose 14.29 percent in the period, as against a 14.27 percent in the previous week. The government raised prices of fuels in late June.

The primary articles index rose 14.50 percent compared with the week-ago reading of 16.48 percent.

Wholesale price inflation, the most widely watched measure of prices, was at 10.55 percent in June, holding in double digits for the fifth straight month. The country's chief statistician said on Monday, it could be around 11 percent in July.

Various government arms have different inflation forecasts, ranging from Prime Minister Manmohan Singh's prediction of 6 percent by December to the 7 percent to 8 percent projected for the period by his economic advisers.

They also differ on their reading of the causes of inflation. The government blames high food prices and says a good monsoon will cool prices, while the RBI says demand-side effects would keep inflationary pressures intact.

High prices are a political headache in a country where hundreds of millions live on less than $1.25 a day.

Massive street protests have been mirrored in parliament, where the opposition parties have stalled proceedings demanding a vote against the Congress-led government for failing to control inflation.

(Editing by Malini Menon)

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