Base effect brings down food inflation to 9.67%

Wholesale food inflation fell sharply to 9.67 per cent for the week ended July 17, primarily on account of low statistical base effect, as prices of food articles continued to rise on a sequential basis. This is the first time that the rate of food inflation has come down to single digit in a year.

Food inflation, as measured by the Wholesale Price Index (WPI), stood at 15.05 per cent during the corresponding week in 2009 and at 12.47 per cent in the previous week.

“These are weekly numbers and it is too early for the index to register the pass-through effects of the fuel price increase. The food inflation will now moderate and stabilise to around 7 per cent in the coming months,” Planning Commission Principal Advisor Pronab Sen said.

Given the high rate of inflation in food articles, the index has shown a sharp decline. However, food prices registered significant increase in prices during the week due to the pass-through effects of fuel price rise announced on June 26. Analysts had expected a 100-125 basis-point effect on the overall index. But till now, in weekly indices, the statistical base effect and global crude oil prices have cushioned the inflation index.

Sen further added the real pressure that WPI would face was from the non-food category or the core inflation. Core inflation is the measure of inflation that excludes certain items that face volatile price movements, notably food and energy.

The inflation rate for the fuel category rose marginally to 14.29 per cent during the week, up from 14.27 per cent in the previous week. In the corresponding period last year, fuel inflation was in the negative territory, at -10.63 per cent.

On a weekly basis, prices of food articles increased by 0.6 per cent and those of foodgrain showed a rise of 0.1 per cent. The prices of pulses, which had been moderating in the previous two weeks, registered an increase of 0.5 per cent during the current week. Milk registered the highest rise in prices, at 1.5 per cent.

Fuel prices, however, fell 0.1 per cent on a weekly basis.

The overall inflation, which includes prices of manufactured goods, stood at 10.55 per cent in June, led by high food prices. Food inflation has remained above 16 per cent for most of the year. It has been falling since it sharply declined to below 13 per cent in mid-June.