The rate of rise in food prices eased by nearly a percentage point to 15.53 per cent as of October 9, and the fall gave the Planning Commission reason to forecast single digit food inflation by December.
While supply side pressures have begun to ease, Planning Commission Deputy Chairman Montek Singh Ahluwalia said food inflation was still high and attributed it to growing affluence in rural areas and resultant higher food consumption.
"If rural income would go up, more people will be buying vegetables, then their prices would go up. (Food) inflation is not up because of grain prices, they are moderate. It is up because of milk, fruit and vegetables," Ahluwalia said.
Food inflation declined 0.84 percentage points week-on-week as vegetable prices softened, government data showed. Food inflation was at 16.37 per cent in the previous week.
On an annual basis, milk and fruit prices remained high. In fact, vegetable prices were also at elevated level, despite moderation on weekly basis.
While milk prices soared by 21.65 per cent, fruit rates rose by 15.65 per cent and vegetables were up by 12.26 per cent on yearly basis.
"I think it (food inflation) is still high. It is up because of milk, fruit and vegetable. I would expect that food inflation would come down to single digit level," Ahluwalia said. On an annual basis, potato prices eased by 50 per cent and onions became cheaper by 8.62 per cent.
Ahluwalia said the impact of good monsoon would be visible in the November food inflation numbers. "When the (overall inflation) data for November will become available then... In case of food, then you will see much bigger decline."
Analysts said the food inflation is now on a declining trajectory and further cooling off would bring it down to single digit by December end.
"Supply disruptions are gradually fading and this will help bring down food inflation. I expect food inflation to come down to single digit by December end," Crisil Chief Economist D K Joshi said.
Overall WPI inflation for September rose to 8.62 per cent, from 8.5 per cent in the previous month, prompting analysts to project a 25 basis points increase in key policy rates in its November 2 policy review. The central bank has raised policy rates five times so far this year.
Although food prices are beyond the scope of monetary policy, they do carry 14 per cent weight on the overall WPI index. By raising policy rates, RBI aims to curb consumer spending which will in turn reduce demand.
"RBI is expected to raise key rates by 25 basis points in its policy review next month as inflation is still high," Joshi said.
Deloitte Principal Economist Shanto Ghosh said he expects food inflation to decline in the coming weeks.
"Food inflation numbers are beginning to cool. In the next couple of weeks it will decline and that would help bring in some decline in the overall inflation numbers of October," he said.
