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Steep rise in Indian food costs sparks fears of global effects

By Anjli Raval
Thursday, January 6, 2011; 2:49 PM

MUMBAI - Indian food prices have hit their highest level in more than a year, rising at an annual rate of 18 percent in a development economists see as a worrying sign that the impact of surging commodity prices is affecting the broader economy.

Food inflation in India is being driven by many of the same factors that have pushed the price of global commodities such as wheat and barley to record highs. It also highlights rising fears of a broader crisis in the developing world, with the United Nations' Food and Agriculture Organization warning this week that global prices have surpassed levels seen during the 2007-08 crisis.

India's Commerce and Industry Ministry said Thursday that food prices rose at an annual rate of 18.32 percent in the week ending Dec. 25. That capped more than a year of double-digit food price inflation for India, where millions of people still spend more than 50 percent of their household income on food.

For Chhaya Singh, a 17-year-old student shopping for daily staples in Mumbai's Colaba market, that has meant that even the cheapest and most basic meal of potato curry has become too expensive.

"We have to find alternative vegetables," he said.

For Nahi Chaudhary, a 38-year-old Mumbai housewife, the higher prices have meant buying fewer eggplants, okra and other now-expensive vegetables. "The increase in price is terrible," she said. "In fact, we don't eat out at all anymore as even restaurants have increased their charges."

Although the inflation level is still below the more than 20 percent rate seen in 2009, economists fear the wider effects of a long-term structural shift in food consumption.

According to Shubhada Rao, chief economist at Yes Bank in Mumbai, there is a "structural rigidity" in food inflation. That "is reinforcing fears that it will spill over to broader inflation, putting pressure on the Reserve Bank of India to raise interest rates," she said.

The latest sharp rise in Indian food-price inflation was partly due to the jump in the price of onions, a staple ingredient in India's curries. Prices of the vegetable had suddenly doubled after unseasonable rains in onion-growing regions damaged crops.

The spike developed into a national scandal, forcing Prime Minister Manmohan Singh to step in and seek onion imports from Pakistan in a bid to bring prices down.

"It impacts us very much," said Mina Singh, who runs a small canteen at a New Delhi arts center, saying she is now spending $22 every two days on onions.

"We can't change the recipes - people will start complaining," Singh said. "We also serve onions as accompaniments alongside the dishes, but we can't start charging for that - it's like charging for water."

Ali Mohammad, a 30-year-old onion trader in Mumbai, said: "People have to buy the same number of onions. It's a staple. That is why I haven't seen any change in sales. But what I have seen is that rather than buying 1 kilogram at a time, as before, they will buy less, but more often, so it is manageable."

Naresh Vitlani, a 54-year-old clothes trader, said: "It seems everything is going up in price, from vegetables and meat to diesel and household cooking gas. We are always worried as to what is next."

- Financial Times

Amy Kazmin in New Delhi contributed to this report.

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