Food inflation in single digit after gap of 3 months

New Delhi: Food inflation, after a gap of three months, fell to single digit at 9.52 per cent in end February on account of declining prices of potato and pulses, thereby bringing some relief to the government trying to combat rising prices.

The easing of food inflation, however, may not prompt the Reserve Bank to halt monetary tightening as some essential commodities are still dearer and rising commodity and crude oil prices will have bearing on the rate of price rise.

Food inflation fell by 0.87 percentage points from 10.39 per cent in the previous week. It has fallen to a single-digit figure for the first time since the week ended December 4, 2010, when it stood at 9.46 per cent.

"Food inflation in single digit… It will come down to below 7 per cent by the end of March," Prime Minister`s Economic Advisory Council Chairman C Rangarajan said.

Experts said inflationary pressure would now shift from food to other commodities, like crude oil which has already topped the levels of 2008 on account of political unrest in the Middle East.

"RBI is expected to continue with its current policy and hike short-term lending and borrowing rates by 25 basis points each in the next quarterly review later this month," Crisil chief economist D K Joshi said.

The RBI will come out with mid-quarterly policy review on March 17.

ICRA Economist Aditi Nayar said, "Given the potential adverse impact on inflation if crude oil prices remain elevated globally, the RBI is expected to increase the repo and reverse repo rates by 25 basis points in the upcoming mid-quarter policy review.

For the week under review, prices of wheat declined by 1.07 per cent on an annual basis, while pulses rates fell by 3.91 per cent.

Prices of potatoes also fell by nearly 9 per cent year-on-year.

"The fall was expected. We believe that henceforth food inflation will continue to be low and will be less of a driver in the overall inflation," Joshi said.

He, however, added that other factors like the current high prices of crude in the international market may affect the overall inflation.

Ongoing clashes in Libya, a major oil exporter and OPEC member, between forces of the country`s leader Muammar Gaddafi and his opponents have pushed oil prices to a 30-month high of around USD 120 per barrel.

Joshi said the Reserve Bank may continue with its policy of tightening money supply to curb inflationary trends.

The RBI had already hiked short-term rates seven times since March 2010 to contain inflationary pressure.