Food inflation soars to 18.32%

Wholesale food inflation saw a sharp increase to 18.32 per cent for the week ended December 25, primarily due to a steep rise in onion prices. The inflation rate is a 23-week high, much above the expectations of analysts and policymakers.

Food inflation, as measured by the wholesale price index (WPI), was at 14.44 per cent for the previous week ended December 18 and at 19.9 per cent in the corresponding week of 2009. Food inflation had moderated since July, after hovering in the 19-21 per cent range since January 2010. It fell to single digits in the second week of November.

However, contrary to expectations of the rate stabilising thanks to 2009’s high base rate, food inflation registered a steep rise from the first week of December, primarily due to supply-side constraints, which pushed up the price of fruits & vegetables, milk and other perishables.

Finance Minister Pranab Mukherjee expressed concern over the spurt in food prices and has asked state governments to urgently look into the supply management of items driving food inflation, in particular local factors that are widening the gap between wholesale and retail prices.

“Going by the data released today, three-fourths of food inflation is explained by inflation in vegetables, and nearly one-fourth is explained by inflation in milk… a large part of the price rise is due to (a) widening gap between wholesale and retail prices, and the growing demand for these products due to rising income levels,” Mukherjee said after the data was released today.

The Cabinet secretary reviewed the price situation at a scheduled meeting today. There were also indications that the government would announce a raft of measures to help dampen prices. New Delhi requested Islamabad to clear an already contracted 1,000-tonne consignment of onions stuck at the Wagah border following Pakistan’s ban on export of the commodity to India. “We will see what can be done. We are trying to see that the shortage is met,” Commerce & Industry Minister Anand Sharma said.

Admitting that the government does not have all the tools to control food prices, Chief Economic Adviser Kaushik Basu said: “It is an utter mistake to think that it is fully within the control of the government to move prices of food up and down.” Basu warned in an interview with a news channel that soaring food inflation could nudge up headline inflation for December, data for which will be released next week.

“Food inflation is twice as high as the average food inflation in November 2010. Prices of vegetables tend to display considerable volatility on a weekly basis, reflecting mismatches in demand and supply. Although vegetable prices are likely to ease substantially in coming weeks, food inflation may remain in double digits in January, with prices of protein sources such as milk, poultry, meat and fish likely to remain firm,” said Aditi Nayar, economist with research and ratings firm Icra.

Agriculture ministry officials stated that onion prices will only come down after supplies from Maharashtra and Gujarat arrive next week, easing supply-side constraints.