High food prices may lead to overall higher inflation: Survey

The Economic Survey today warned that overall prices would go up further in the next few months and partially blamed poor food management policies for double- digit food inflation.

"Since December 2009 there have been signs of these high food prices, together with the gradual hardening of non-administered fuel products prices, getting transmitted to other non-food items, thus creating some concerns about higher-than-anticipated generalised inflation over the next few months," Economic Survey, tabled in Parliament, said.

On a year-on-year basis, Wholesale Prices-based inflation in December 2009 was 7.3 per cent, while food inflation was 19.77 per cent.

Higher food prices were mainly because of supply-side constraints, compounded by poor monsoons in 2009.

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"...In the case of sugar, delay in market release of imported raw sugar may have contributed to the overall uncertainty, thereby allowing prices to rise to unacceptably high levels in recent months," the Survey said.

It, however, observed that food prices may have reached their peak in December last year and are expected to moderate and also stabilise overall WPI on account of the likely impact of several measures taken by the government to contain price rise in recent months.

The government has taken a number of short-term and medium term measures to improve domestic availability of essential commodities and moderate inflation, it said.

As part of fiscal measures, the government reduced import duties to zero for rice, wheat, pulses, edible oils and sugar.

At the same time, it also reduced import duties on refined oils and vegetable oil to 7.5 per cent and abolished levy in respect of all imported raw sugar and refined sugar.

The government also banned export of non-basmati rice edible oil and pulses as part of the administrative measures, the Survey said.

Besides, futures trading in rice, urad and tur was suspended and later during the year even the trading in sugar was suspended, it added.

During the year, it said, high inflation was reported in the case of onions and potatoes among vegetables, pulses, rice and wheat.

Among manufactured products high prices were reported in the case of edible oil and sugar.

The Survey noted that though the current spectre of double-digit inflation in food articles is ascribable to supply-side constraints, it is necessary to ensure that the monetary policy stance does not lead to pressure on prices.

The Reserve Bank, therefore, initiated calibrated changes in rates to mop up prevalent excess liquidity in the system through the second and third quarterly review wherein increase in Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) respectively was announced.