Costlier vegetables push food inflation to 17.05%

Food inflation, as measured by the Wholesale Price Index (WPI), rose to 17.05 per cent for the week ended January 22, primarily due to rising prices of vegetables, particularly onions.

Food inflation stood at 15.6 per cent in the previous week ended January 15, and was at 20.56 per cent during the corresponding period in 2010.

Food inflation had started moderating since November, reaching the single-digit level in the first week of December. But, the end of that month it rose to high double digits, as onion prices went up rapidly, making the index increase by 4-5 percentage points within two weeks. An increase in fuel prices have also resulted in a further rise in food inflation.

 

Fuel inflation rose to 11.6 per cent during the week as against 10.87 per cent in the previous week, and 6.08 per cent during the same period last year.

Analysts expect the monthly overall inflation data for January to be close to 8 per cent, slightly lower than the 8.4 per cent registered in December 2010. However, the year-end forecasts by most analysts continue to be higher than the Reserve Bank of India’s (RBI’s) projection of 7 per cent.

The high inflation rate in food articles come even as the rate is cushioned by a very high statistical base effect of 2010 and adds to the concerns for rapidly increasing inflationary expectations.

“Given this trend, we think the WPI inflation would be closer to 7.5 per cent by March-end, 50 basis points higher than RBI’s estimate. Consequently, we expect RBI to continue increasing rates in March as well as May, 25 basis points in each meeting, which should push the repo rate up to 7 per cent,” Deutsche Bank said in a research note.

On an annual basis, onion prices rose by 130.41 per cent in the third week of January, although they have moderated considerably in the recent days. Overall, vegetables became dearer by 77.05 per cent, as potato prices rose by 6.22 per cent. Fruits and milk became costlier by 15.47 per cent and 11.41 per cent, respectively.

Analysts further said the level of increase in onion prices during the week was contrary to the expectation of an abatement. Moreover, the week also saw an increase in the prices of cereals, fruits and protein sources.

“This will add pressure on the overall food inflation. The increase in fuel inflation was anticipated based on the rise in petrol prices,” said Aditi Nayar, economist with ICRA Ltd, a credit ratings agency.

Analysts further expect though the inflation rate might moderate in the coming months, it would gather pace from March onwards.

“We would continue to see a rise in inflation numbers in the coming months although the rise would be at a slower pace. I expect a steep rise in inflation happening from the second quarter of the current calendar year,” said Siddharth Shankar, economist with Delhi-based financial services firm, Kassa India.