Food inflation in double digits after six weeks

After lingering tantalisingly close to 10 per cent for about a month-and-a-half, food inflation climbed to double digits for the week ended October 8, signalling that Reserve Bank of India (RBI) may continue with its tight monetary stance in its policy review later this month despite the economy showing signs of a slowdown in growth.

As protein-based items turned dearer, wholesale price-based annual food inflation rose by a whopping 1.28 percentage points to touch 10.60 per cent for the week, against 9.32 per cent a week earlier. At almost a six-month high, food inflation is headed up at least for a few more weeks, economists said.

Financial services firm Kassa said the inflation was bound to go up for another two-three weeks. “Then we can see some moderation,” said its director Siddharth Shankar. “RBI may continue with a tight monetary stance.” CARE Ratings said RBI would continue with its rate hike stance as it had been reiterating this for a while that it is inflation over growth for the central bank. “There is definitely a scope for another hike,” said Madan Sabnavis, chief economist of the research and analysis firm.(Click here for table & graph)

The economic growth is showing signs of moderating. The economy grew at a six-quarter low of 7.7 per cent in the April-June segment of this fiscal. Signs for the second quarter are also not very encouraging as well.

While industrial growth remained sub-five per cent in the first two months of the second quarter, widely-tracked HSBC purchasing managers’ index contracted in September for the first time since April 2009.

The inflationary push came majorly from egg, meat and fish, which saw the rate of price rise moving up to 14.10 per cent for the week under review from 9.92 per cent a week before. Inflation in milk rose marginally to 10.80 per cent from 10.35 per cent. Said Sabnavis:

“Inflation in egg, meat and fish can only come down when cost of production comes down, like fodder or coarse cereals like maize.” Milk inflation would also remain steady as the demand would remain up due to the ongoing festival season, he added.

Among other protein-based items, pulses saw inflation going up to 7.42 per cent from 6.87 per cent a week ago.

Even though inflation in both potatoes and onions declined, the rate of price rise in vegetables rose to 17.59 per cent from 13.01 per cent a week earlier. Inflation in fruit also rose to 12.39 per cent from 12.19 per cent. However, inflation in cereals, comprising rice and wheat, was down to 4.73 per cent from 5.41 per cent. Sabnavis said non-core inflation may move down gradually by this month-end, but fruits and vegetables will start moderating only in December.

Headline inflation has persistently been over nine per cent for this calendar year till September, despite RBI going for 12 rate hikes since March, 2010. Food inflation has 14.34 per cent weight in the wholesale price index, on which inflation is based.

The Planning Commission said it believed the RBI measures would bring the year-end inflation lower than eight per cent. “From next month onwards, it will start softening.” claimed its deputy chairman, Montek Singh Ahluwalia. “Inflation in recent times is not due to supply-side pressures,” he added.