High edible oil, milk prices risk to food inflation: Pranab

With inflation falling to a two -year low, Finance Minister Pranab Mukherjee today hoped it will drop further to 6% by March, but warned that high prices of edible oils and milk could stoke food inflation, which is currently ruling in the negative.

"I think it (inflation) should be further reduced since it is still not at acceptable level," he said.

Mukherjee was confident that moderation in overall inflation would continue in the coming months also and the March end inflation would be "closer to 6%".

While the Wholesale Price Index (WPI) based inflation declined to a 25-month low of 6.55% in January, there has been a significant drop in food inflation. The monthly food inflation is negative (at -0.52% in January) for the first time in recent times.

 However, "the main worry going forward is on edible oils, milk and some animal proteins which may continue to threaten food inflation, as the required institutional reforms in agricultural marketing and improvement in storage and cold chains will...(happen) with a lag," he added.

The inflation in edible oil and milk in January was high at 9.59% and 12.6%, respectively, while egg, meat and fish was at 18.63%.

Also, inflationary pressure continued in manufactured items, which which have a weight of around 65% in the WPI basket. Prices of manufactured products, went up by 6.49% year-on-year in January, as against 7.41% in the previous month.

"...Softening in the prices of manufactured goods despite the rapid decline in non-food primary inflation, may be more gradual," the Finance Minister added.

 Headline inflation was near double digit for most of 2010 and 2011. The apex bank hiked key policy rates 13 times, totalling 350 basis points between March 2010 and October 2011, to tame inflation.