Food inflation to ease in two months, says Basu

Food inflation would come down substantially in the coming two weeks, Chief Economic Advisor Kaushik Basu said today, even as the prices of fruit and vegetables have gone through the roof.

He, however, cautioned that core inflation, which excludes food and fuel, was on the rise. Core inflation rose sharply to 8.6 per cent in June, more than double from 3.5 per cent in December 2009.

“Food inflation continues to slow down and non-food inflation is on a slow pick-up… Food price inflation for the week ended July 29 will be substantially lower than the food inflation data released this week,” Basu told reporters here. He added the food inflation had flattened since November 2009.

Food inflation for the week ended July 3 stood at 12.81 per cent, compared with 12.63 per cent in the previous week. Overall inflation, measured by wholesale price index, stood at 10.55 per cent in June, against 10.16 per cent in May.

Basu said the impact of the increase in fuel prices was partly registered in the June data, but some more was yet to come in the July figures.

Less than two weeks before the Reserve Bank of India’s credit policy review on July 27, the chief economic advisor to the finance minister said there was a need to curb demand to tame inflation. But he said sucking out money supply might curb inflation but push up unemployment.

“We’ve been aware that we do need some demand management… I continue to maintain that six to nine months from now, the overall price index would be lower than it would be if there was no decontrol of petrol and diesel prices,” Basu said, adding that competition among private oil companies would bring down oil prices in the long term.

On growth prospects of the economy, he said the gross domestic product (GDP) growth for 2010-11 would be faster than 8.5 per cent projected by the government, while in the first quarter (April-June 2010) 9 per cent growth was likely to be achieved.

The International Monetary Fund had last week raised India’s GDP growth estimate in 2010 to 9.5 per cent, from 8.8 per cent.

Basu cautioned that a complete exit from stimulus should not happen in one go because in a globalised economy India could not take drastic steps. “Exit from stimulus should be a gradual process. My view is that do not make sudden abrupt moves which affect the economy,” he explained.