Better monsoon may act dampener for inflation: RBI

A better monsoon than last year augurs well for the farm production, which might act as a major dampener for food inflation, the Reserve Bank of India (RBI) said today.

"The cumulative rainfall has been 14 per cent below its long period average (LPA) during the current monsoon season so far (as on July 21, 2010). Even so, monsoon performance has been much better than it was last year, which augurs well for agricultural production," the RBI said in its monetary review.

Data on crop-wise area indicate a significant increase over the relatively low levels of last year, the country's apex bank said.

"A good kharif harvest will act as a major dampener on short-term food price inflation," RBI Governor D Subbarao said.

Food inflation is 12.47 per cent for the week ended July 10.

Despite deficient monsoon so far, RBI noted that it has been enough to induce a significant increase in sown area across a range of crops, the high prices of which have been a source of great worry.

Food inflation has remained at an elevated level for over a year now reflecting structural bottlenecks in certain food items such as pulses, milk and vegetables, the RBI said.

The country had faced the worst-ever drought in three decades last year as a result of which foodgrain production fell by over 16 million tonnes from a record of over 234.47 million tonnes in 2008-09.