What is the reason behind inflation in India?

For the answer, Finance Minister P Chidambaram and the United Progressive Alliance government may read an advisory released by The Earth Policy Institute.

If prices of food and vegetables in India are soaring to new heights, blame it on the Americans.

According to the EPI statement, the diversion of US grain to produce ethanol to fuel cars has led to an increase in world food prices and the developing countries like India have already started paying for the rise in wheat prices.

Corn prices have doubled over the last year; wheat futures are trading at their highest level in 10 years and prices of rice are rising, EPI, a Washington-based environmental organisation, has said.

In India wheat prices are up 11 per cent and all of this is just the beginning. Higher grain prices mean higher food prices. In Mexico, the price of tortillas has risen by 60 per cent, driving thousands of angry Mexicans into the streets.

Food prices are rising worldwide. The US Department of Agriculture projects the wholesale price of chicken in 2007 will be 10 per cent higher than in 2006, prices of eggs will be up a whopping 21 per cent, and milk will be 14 per cent higher.

In China, pork prices are up 20 per cent above a year earlier and egg rates are up 16 per cent, the EPI said, adding that unlike in the past the food price rise is not going to be a temporary phenomenon.

In the past, food price rises have usually been weather-related and always temporary. This situation is different. As more and more fuel ethanol distilleries are built, world grain prices are moving up toward their oil-equivalent value in what appears to be the beginning of a long- term rise.

By 2008, close to one third of the US grain harvest will be going to ethanol, reducing the amount available both for internal use and for export.