High food inflation may force RBI to hike rates

After a gap of over five months, food inflation entered the double-digit zone at 10.05% for the week ended August 20, with Finance Minister Pranab Mukherjee describing the trend as "disturbing" and experts saying RBI may go in for another rate hike.

The weekly food inflation, measured by Wholesale Price Index (WPI), went up from 9.80% on account of expensive onion, vegetables, fruits and protein-based items.

The last time food inflation crossed 10% was in the week ended March 12.

"Food inflation has gone up... This is really disturbing. We shall have to ensure and remove the supply constraints on food items," Mukherjee told reporters here.

As per the official data released today, prices of onion soared by 57.01% year-on-year and potato rose by 13.31% during the week under review.

Fruits became dearer by 21.58% and vegetables overall by 15.78 on an annual basis.

Prices of protein rich items, egg, meat and fish were up 12.62%, while milk and cereals became dearer by 9.22% and 4.64% respectively.

Attributing the jump in food inflation to seasonal factors, experts opined it could again force the Reserve Bank to hike interest rate during its mid-quarter monetary policy review scheduled on September 16.

"With headline inflation remaining well above 9%, we expect RBI to raise key policy rates by 25 basis points at its next mid-quarterly review," Crisil chief economist D K Joshi said.

Food items constitutes about 14% to the WPI.