India says it has tamed food prices as inflation slides

[New Dehli] India's new government declared on Tuesday it had controlled rising food prices, a burning issue in a country where one-quarter of the population lives in deep poverty, after the country posted better inflation data.

Annual wholesale inflation slowed to a five-year low of 2.38 per cent last month, the commerce ministry said, helped by lower food prices. The numbers came a day after data showed consumer price inflation fell to a three-year low of 6.46 per cent in September, driven partly by falling food costs.

"It is heartening to note we have been able to bring food inflation under control," finance minister Arun Jaitley, a member of India's right-wing Bharatiya Janata Party government which took power in May, said late on Tuesday.

"We are confident soon we will be achieving a low and stable inflation rate," he added.

India's central bank has said it wants to "break the back of inflation", which the country has battled for many years, before it moves to lower steep interest rates seen as keeping economic growth in low gear.

Rises in prices of food especially have caused huge hardship for India's 1.2 billion population of which nearly a quarter live in severe poverty, according to the World Bank.

Global crude oil prices, which have fallen nearly 20 per cent this year, have also helped improve the inflation outlook in the fuel-import-reliant nation.

Analysts, however, noted high year-ago figures had helped improve inflation numbers and warned this base effect would wear off around November.

The bank, which kept its trend-setting lending rate on hold at a steep eight percent last week, has set a goal of whittling down consumer inflation to six per cent by January 2016.

India's economy has posted two years of sub-five-per cent growth, the longest slowdown in a quarter-century, and business has been clamouring for rate cuts to reduce borrowing costs and spur investment and consumer spending.

September's price inflation drop was helped by bountiful rains in the last stages of a patchy monsoon that reduced food prices.

But analysts worry inflation may remain an endemic problem with India's ramshackle rail, road and other transport, antiquated machinery and bureaucratic red tape, that slow production and deliveries.

Mr Jaitley said the government was "committed to continuing reforms in food markets that will improve supply responses and keep inflation low".

"If this (downward inflation) trend is sustained, the central bank remains on track to achieve its six-per cent consumer price inflation target," said Frederic Neumann, co-head of Asian Economic Research at HSBC.

However, the central bank is likely to "wait for further evidence price pressures are contained", Mr Neumann said, forecasting monetary policy authorities will remain "in wait-and-see mode for an extended period of time". AFP