Food inflation up at 8.76% RBI likely to increase rates

Wholesale food price-based inflation inched up to 8.76 per cent for the week ended April 16 from 8.74 per cent a week ago. This is the second last data on inflation before RBI annual policy next month, signifying that the central bank is likely to raise policy rates. The next data on retail price inflation for items consumed by industrial workers is slated to come by this month-end.

Food inflation rose despite food price index coming down by 0.3 percentage points during the week, as inflation is calculated year-on-year.

Food price index, which has over 14 per cent weight in overall wholesale price index, declined to 182.6 points from 182.9 points a week ago.

This is the second week in a row when food inflation rose despite food price index coming down, displaying quite well that base effect is playing a role in marginally larger inflation.

Economists, however, said perishable food products like fruits will see price pressure in the weeks to come.

Otherwise, overall inflation is shifting gears to manufactured and fuel items, because of which RBI is expected to raise policy rates in its monetary policy for 2011-12 on May 3.

“Core inflation (manufactured products sans food products) is facing demand pressure. Overall inflation is likely to peak in September-October, may even reach double digits, if the government decides to pass through some of international rise in fuel items,” Yes Bank Chief Economist Shubhada Rao said.

Overall, inflation rose to 8.98 per cent in March, against RBI’s projections of around 8 per cent and the Finance Ministry’s expectations of 7-7.5 per cent.