We Report, You Decide

Food inflation in double digits, RBI may raise rates

New Delhi: After a gap of over five months, food inflation entered the double-digit zone at 10.05 percent 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 percent on account of expensive onion, vegetables, fruits and protein-based items.
The last time food inflation crossed 10 percent 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 percent year-on-year and potato rose by 13.31 percent during the week under review.
Fruits became dearer by 21.58 percent and vegetables overall by 15.78 on an annual basis.
Prices of protein rich items, egg, meat and fish were up 12.62 percent, while milk and cereals became dearer by 9.22 percent and 4.64 percent 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 percent, 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 percent to the WPI.

Joshi said seasonal factors like supply problems due to heavy rainfall in parts of the country is pushing up the food inflation.
He, however, said as monsoon has been good so far, prices of vegetables may come down in the coming days.
Planning Commission Deputy Chairman Montek Singh Ahluwalia too said seasonal factors are pushing up inflation.
"Inflation is a worry… If you see the data, last year at this time food prices went down and then rose again. So I would not be surprised if prices rise a little bit," Ahluwalia said.
Overall, primary articles recorded 12.93 percent inflation for the week ended August 20, up from 12.40 percent in the previous week. Primary articles have a share of over 20 percent in the WPI.
However, inflation in non-food articles, like fibers, oilseeds and minerals, stood at 17.19 percent, down from 17.80 percent in the previous week.
As per the data, fuel and power inflation was at 12.55 percent for the week ended August 20, down from 13.13 percent in the previous week.
"I expect food inflation to come down in the coming weeks … as the monsoon has been good. We are almost towards the end of the monsoon and all indications are that the agricultural production will be good during this year," Prime Minister`s Economic Advisory Council Chairman C Rangarajan said.

Experts said resurgence in food inflation is expected to put more pressure on the government and the Reserve Bank.
June headline inflation, which also factors in fuels and non-food primary items and manufactured items, was at 9.22 percent.
The Reserve Bank has already hiked policy rates 11 times since March 2010 to tame demand and curb inflation.
"The considerable increase in vegetable prices in week-on-week terms was along anticipated lines following heavy monsoon rainfall and associated supply disturbances," ICRA economist Adidi Nayar said.
The RBI and the Prime Minister`s Economic Advisory Council had projected headline inflation to remain high at around 9 percent till October.
Food inflation was in double digits for most of 2010, but started to moderate from March this year.
In its Economic Outlook for 2011-12 released last month, the PMEAC said while pressure from food inflation has fallen in recent months, the rate of price rice still remains quite high, with the possibility of a further surge in coming months.

Read Our Next Story