Cereal, vegetable prices push food inflation to 3-week high

Good monsoon and Reserve Bank of India’s (RBI’s) money-tightening measures have yet to rein in the country’s food inflation, which has been refusing to come below nine per cent on a sustained basis. In fact, it rose to a three-week high of 9.41 per cent for the week ended September 24 on the back of price pressures from cereals, pulses and some vegetables. High food inflation may put pressure on the country’s central bank to go for another rate hike in its monetary review, slated for October 25.

This, despite a slowdown in various parameters of economic growth.

Finance Minister Pranab Mukherjee said the high food inflation was a matter of concern for the government. “We shall have to see how to bring it down to a moderate level. I am constantly in touch with the RBI,” he added.

Crisil said the latest data showed that pressure continued to mount on the RBI. “We are definitely moving toward the end of rate hike cycle,” said D K Joshi, chief economist of the global analytical company. “There may be one last round of increase in interest rates later this month.”

Cereals continued to see price pressures amid the talks of agriculture ministry proposing a whopping 15 per cent hike in the minimum support price of wheat to Rs 1,350 a quintal. However, it the wheat prices are, in fact, declining year-on-year and inflation in this cereal was (-)1.01 per cent during the week.

The decline in wheat inflation is slowing over the weeks. Though vegetable inflation mounted to 14.88 per cent from 11.98 per cent earlier, potato and onion displayed a declining trend.

Onion inflation, which became a matter of concern for the previous few weeks and touched a high of 57.01 per cent on August 20, has since been declining. It eased to 10.58 per cent this week over 17.04 per cent in the previous week.

The rate of price rise in potato fell by 5.57 percentage points to 9.34 per cent for the week ended September 24. The inflation in protein items like meat, egg, and fish also abated. Non-food articles in primary items (non-processed ones) also experienced a fall in inflation. Fuel inflation remains flat at 14.69 per cent.

Economists expect a hike for an another 25 basis points in the upcoming policy meet of the apex bank. Said Siddharth Shankar, director of financial services firm KASSA India: “Going by inflation numbers, I would argue that RBI must raise the interest rates.”

This, despite a contract in the HSBC Purchasing Managers’ Index (PMI) of private sector services for India in September — for the first time after April 2009.

Also, the PMI for manufacturing was close to the contraction last month. Besides, August saw eight core sector industries growing at the slowest pace in eleven months — at 3.5 per cent.