Food inflation at 2-month high fuel, power steady

Food inflation dodged the government again, rising to a two-month high of 9.01 per cent for the week ended May 28. The government has been maintaining that inflation was easing and shifting gear, moving towards manufactured products.

The rise also comes on top of the 20.6 per cent inflation a year earlier. Meaning, even the high base effect could not lower the inflation rate, which means prices rose sharply during the week. Inflation rose 0.95 percentage points over the 8.06 per cent a week before.

Inflation in fruit prices for the week under review was 30.78 per cent, up from 30.51 per cent. As could be seen from the accompanying chart, the inflation rate of almost all items are up, except for potatoes. Fuel and power inflation remained steady at 12.46 per cent, as the petrol price rise had already been factored in.

Economists are divided on whether the Reserve Bank of India would raise policy rates further in its monetary review next week. It has done so nine times since early 2010 to tame inflation.

“I think RBI will not raise the rates in their June meeting because food inflation rise is a supply-side issue,” said Siddharth Shankar, director of KASSA, a financial services firm. However, Rajrishi Singhal, head, policy & research, Dhanlaxmi Bank, said, “Given the persistence of inflationary pressures, we feel RBI may go through with a 25-bps rate hike in its review meeting on June 16.”

The monsoon will play a crucial role in bringing down food inflation. The weather office said recently there were favourable conditions for further advance of the monsoon. RBI, in its annual policy review last month, had said the monsoon would be critical in shaping inflation expectations.

Even so, it said the impact of a normal monsoon on moderation in food inflation may be less than commensurate, given a strong structural component in the latter and an elevated global food price situation.

Yesterday, the World Bank had said, “Unfortunately, bringing inflation back down will be complicated by the trend rise over the past decade, which has contributed to an increase in inflationary expectations in recent years.”