Food inflation worms it way up by decimals

Rise fuelled by hike in cereals milk prices

PTI | September 3, 2010



After declining for two consecutive weeks, food inflation inched up marginally to 10.86 per cent for the week ended August 31, as prices of cereals, fruits and milk rose.

Food inflation was 10.05 per cent during the previous week, while it was 14.86 percent a year ago.

The rise in food inflation has been driven by higher prices of cereals, milk and fruits. Prices of vegetables, especially onion and potato, however, has declined.

Analysts and experts, however, believe that the food inflation will stabilise in the next few months and may decline to single digit level, mainly on account of the expectations of good monsoon and kharif output.

The Reserve Bank, experts said, will continue to follow the tight monetary policy to check rising prices. The central bank had raised key policy rates thrice in the recent past to check inflation.

"We will continue to see some minor ups and downs in the food prices for a few weeks. However, the overall picture is one of decline due to a good monsoon and we should food inflation in single digit by the last quarter, as markets are flooded with fresh farm supplies," Crisil Chief Economist D K Joshi said.

The central bank, he said, was unlikely to make any changes in its monetary policy stance, based on upswing in the food inflation during just one week.

"We do not think RBI will go for any major changes at its upcoming mid-quarterly review on September 16. However, we may see some action after that," Joshi said.

On an annual basis, cereals turned expensive by 6.67 per cent for the week under review. Within this group, prices of pulses soared by over 14 per cent, while rice and wheat increased by 8.05 per cent and 7 per cent, respectively.

However, vegetable prices went down substantially.

Compared to last year, vegetables were less expensive by 9.90 per cent.

Within vegetables, potato was cheaper by 51.25 per cent, while onion went down by 8.97 per cent on an annual basis.

When contacted, Jawaharlal Nehru University's Jayati Ghosh said: "There is always fluctuation in food inflation and this is a very normal season pattern. However, the issue of price rise for the common people have to be addressed."

She said RBI may go for some more tightening of the monetary policy over the next few months but it will not be solely driven by a single week's food inflation data.

"The question is where (policy action will take place).

They need to make it sector specific. There are problem areas like food and this should be taken into account," Ghosh said.

Facing the Opposition attack in the Lok Sabha on the issue of price rise, Finance Minister Pranab Mukherjee had last month sought the cooperation of the states in taming food prices, while dismissing the charge that the Centre is insensitive to the plight of the common man.

Overall inflation based on wholesale prices had declined to single digit in July at 9.97 per cent, after being in double digit for five months.

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