Food prices rise 14.5 pct y/y, WPI falls

By Rajkumar Ray

NEW DELHI (Reuters) - The worst dry spell in nearly four decades pushed up food prices in India by an annual 14.5 percent in the week to Aug. 22, adding to worries that wholesale price inflation is poised to accelerate in coming months.

The widely watched wholesale price index fell by a smaller-than-expected 0.21 percent in the 12 months to Aug. 22, its 12th successive fall, although the number is distorted by the base effect of last year's high energy prices.

Analysts expect the overall price index to come out of the negative zone sooner than earlier thought, pushing inflation above the comfort zone of policymakers and prompting monetary tightening at the start of next year.

"Maybe in another one or two weeks, WPI will be out of the negative zone. I think, WPI will definitely cross 6 percent by March end," said D.K. Joshi, principal economist at domestic rating agency Crisil.

A government panel said this week that wholesale price inflation could rise beyond a 4 to 5 percent comfort level by the end of the fiscal year in March.

Montek Singh Ahluwalia, the deputy chairman of a plan panel that advises the government on key policy issues, said food prices may ease by end-March, which would help rein in overall inflation within the comfort zone.

Private economists say WPI could rise even faster, putting the central bank in a tough position given the inability of monetary policy to mitigate price rises driven by supply-side shortages.

The WPI figure compares with last week's 0.95 percent annual decline and a market forecast for a decline of 0.87 percent.