Business Standard

Food inflation at 10-month high of 14.44%

BS Reporter  |  New Delhi 

Despite a high statistical base of last year, wholesale for the week ended December 18 touched a 10-month high of 14.44 per cent as vegetables, particularly onion prices, soared.

Wholesale food inflation, as measured by the Wholesale Price Index (WPI), had re-entered double digits at 12.13 per cent in the week ended December 11 and had stood at a 20-year high of 21.29 per cent during the corresponding period in 2009.

However, last year, shortages were fuelled by the supply constraints due to drought, which had hit production of cereals, pulses and rice. However, this year, perishables like vegetables, fruits, milk, fish, and have accelerated inflation coupled with rise in fuel prices.

Fuel inflation also registered a rise to 11.63 per cent during the week from 10.74 per cent in the previous week primarily due to petrol price hike of Rs 3 per litre from December 15.

Finance Minister acknowledged that had emerged as a concern once again after momentarily showing signs of moderation in the last two weeks of November.

“This is an area of concern no doubt…There has been real increase in prices of certain food items. So far as onion is concerned, we have taken care of it…But the fluctuation in milk, fruit, vegetable and certain other commodities have contributed to inflation. We are waiting for the full monthly figure”, said Mukherjee after the data was released.

Mukherjee added he expects overall inflation to be around 6.5 per cent, higher than the 5.5 per cent indicated by Prime Minister earlier this month.

Though analysts had largely underestimated spurt in in the previous week, the increase in this week’s inflation rate has been largely on expected lines.

“The increase in inflation related to food articles and fuel was along expected lines, with a further rise in the prices of several and the hike in petrol prices. While the trend in vegetable prices would reverse to an extent in the coming weeks, other items such as and poultry are expected to exert pressure on food price inflation. The pace of inflation is likely to increase in December, after registering a decline in the previous two months”, said Aditi Nayar, economist with research and ratings agency

With the consistent rise in food inflation, most analysts expect the Reserve Bank of India to raise key policy rates in order to control inflationary expectations.

“If the food inflation persists, RBI may go for a moderate hike of 25 basis points in short-term rates at its next policy review in January”, said India Principal Economist

Icra’s Nayar also expects the central bank would increase key policy rates during the third quarter review as the RBI’s stance is towards “anchoring inflationary expectations.”

Most analysts say even as food inflation is expected to show moderation in the coming weeks, but entire index will feel pressure from rising crude prices and that of non-food articles, which will relay inflationary pressure into the manufactured products category.

During the week under consideration prices of increased by 4.58 per cent and the annual inflation rate stood at 29.26 per cent for the week as compared to 19.95 per cent last year. Prices of onions increased by 3.49 per cent during the week and the year-on-year inflation rate stood at 39.66 per cent.

Inflation rates for and eggs, and poultry continued to beat high double-digit levels of 17.75 per cent and 20.34 per cent, respectively, for the week as against 22.07 per cent and 29.39 per cent earlier. Prices of cereals and pulses, however, saw a drop of 0.06 per cent and 0.21 per cent, respectively during the week.

Inflation rate for non-food articles also continued to be high at 23.13 per cent with a sequential increase of 0.82 per cent during the week. Petrol prices increased by 5.71 per cent during the week as the overall index registered 0.8 per cent increase in prices of all fuel commodities.

First Published: Fri, December 31 2010. 01:39 IST