REFILE-MORNING BID:ASIA-A daily note from our Economics Correspondent

Mon Dec 16, 2013 8:04pm EST

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TOKYO Dec 17 (Reuters) - It's the onions, stupid.

The Reserve Bank of India is expected to crank up interest rates for the third time in a row this Wednesday after wholesale inflation hit a 14-month high, driven by the soaring cost of vegetables.

There is evidence that food prices are driving up wages, particularly in the construction industry that relies on manual labour, so the central bank has reason to worry about them.

But it's not as if onion or potato consumption is driven by credit, so it's hard to imagine how a tightening can help.

The root causes of food inflation are well known -- poor infrastructure, waste and supply bottlenecks.

Fixing that is the government's job and when food prices soar by a fifth in just a year, hitting the poor masses hardest, it becomes a major political challenge with a general election looming next year.

In most countries the central bank is expected to worry about inflation and watch spendthrift governments, but not in India: Here the politicians have more at stake, they could and should do something about it.


After strong U.S. manufacturing and euro zone business activity data on Monday, investors get the final clue today in the "will they, won't they" guessing game ahead of the Fed's Dec. 17-18 meeting.

Good economic data back the view that the Fed could start scaling back its stimulus. Another argument in favour of starting the taper now is simply to get it over with and spare investors more guesswork. An expected benign inflation reading on the other hand, suggests the Fed can still wait.

A question missing in the debate is how do Ben Bernanke, Janet Yellen and company feel about Santa Claus? Will the fact that the taper could spoil the festive mood for many, many investors play a role in the discussion? (Editing by Eric Meijer)

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