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India is the only major Asian economy where non-food items have edged out food products as the bigger contributor to consumer-level inflation.
Despite the RBI repeatedly tightening its monetary stance though 2010, the non-food items progressively emerged as a bigger contributor to consumer price inflation in India in the second half of last year, according to latest ADB food inflation data for the region.
This is a reversal of the trend in the first half when food items had a greater share, signalling a spill over of the food inflation in India to the broader index at a faster rate than in nearly all major Asian countries.
The upsurge in global food prices during the latter half of last year is widely captured across most Asian countries, including China, Thailand, Vietnam, Bangladesh and Pakistan.
In all these countries, food continued to be the biggest contributor to consumer-level inflation throughout 2010.
A surge in non-food inflation, which forms a big chunk of what it called core inflation — or the component of inflation excluding food and energy prices that is widely held as a more accurate forecast of future inflationary trend — broadly signals the need for further monetary tightening.
Rising core inflation signals that inflation is no longer driven by supply-side factors alone and a higher contribution of non-food items to overall inflation could force further rate hikes, at the expense of the economic recovery.
According to the data, in India, food and non-food items had a contribution of 7.8 and 6.7 percentage points respectively between January and June 2010. This changed to 4.3 and 5.5 percentage points in the second half of the year, with non-food items gaining an upper hand.
For China, Bangladesh, Indonesia and Pakistan, food items continued to be the main concern through the year.
South Korea was one of the exceptions, where non-food items had a bigger share of consumer inflation during the entire 12-month period while Vietnam had non-food items with a bigger contribution in the first half and food items taking over in the second.
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