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| Food inflation rises to 17.4% |
| BS Reporter / New Delhi Jan 29, 2010, 01:06 IST |
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After marginal moderation for three weeks in a row, food inflation inched up to 17.4 per cent for the week ended January 16.
Food inflation has consistently been in double digits and had reached a decade high of 20 per cent in the second week of December 2009, primarily due to supply side concerns that have been aggravated by low agricultural output due to poor monsoons.
The wholesale food inflation was 16.81 per cent for the previous week ended January 9, and at 10.85 per cent in the corresponding period of 2009.
Analysts say as rising food inflation will spread to the manufacturing category, and put more pressure on inflationary expectations, the Reserve Bank of India (RBI) may increase the cash reserve ratio (CRR), the portion of deposits that banks keep with RBI, by 25-50 basis points in the third quarterly review of its monetary policy tomorrow.
Some even expect an increase in policy rates like repo (short-term lending) and reverse repo (short-term borrowing), but most maintain that RBI will leave policy rates unchanged for the time being.
“Moderation in food inflation has not been significant. For the next month or so, I expect food inflation to be fairly strong…I expect RBI to raise CRR by 50 basis points, thereby removing about Rs 21,000 crore from the economy,” said HDFC Bank chief economist Abheek Barua.
The central bank has also expressed concern over the rising inflation of wholesale prices and has said that reining in inflation without hurting economic growth will be the main challenge.
“Returning to high growth path while avoiding the situation of generalised increase in inflation through monetary policy action has emerged as a delicate challenge for RBI,” said its macroeconomic review.
The central bank said that even as food inflation was primarily triggered by supply-side constraints, there had been signs of emergence of generalised inflation.
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