Food inflation rises to 14.44%, RBI may act
Dec. 30: Soaring onion prices pushed food inflation to a 10-week high of 14.44 per cent for the week ended December 18, a development that may prompt the Reserve Bank to hike key policy rates next month to check price rise. “This is an area of concern, no doubt. There has been real increase in the prices of certain food items. We are looking into it,” the Union finance minister, Mr Pranab Mukherjee, said.
Food inflation rose for the fifth consecutive week on the back of onion prices which rose by almost 40 per cent on an annual basis touching Rs 75-80 per kg in the retail market. Onion prices, however, have declined since then. The Reserve Bank too expressed concern on the high rate of price rise, which it says, has emerged as a new risk factor.
“Growth has rebounded strongly but inflationary pressures persist, driven both by domestic demand and increasing global commodity prices,” RBI said in its second Financial Stability Report. The price rise was also quite steep in case of vegetables, fruits and protein-based products like milk, egg, fish and meat. The price rise in these products ranged between 17 to 30 per cent.
“So far as onion is concerned, we have taken care of it but the fluctuation in milk, fruits, vegetables and certain commodities have contributed to the inflation. We are waiting for the full monthly figure,” Mr Mukherjee said.
“Weekly variations are there. Whether these are corrected in the coming week is to be seen. But I am still holding that year-end inflation may be around 6.5 per cent,” he added. Mr Mukherjee’s estimates of yearend inflation, however, is higher than 5.5 per cent indicated by the Prime Minister, Dr Manmohan Singh, earlier this month.
The rising in food inflation by 2.31 percentage points from 12.13 per cent in the previous reporting week, experts said, will force the central bank to review its pause on hiking the short-term key policy rates at its quarterly review of the credit policy on January 25. Food inflation was 21.29 per cent a year ago.
Moreover, the impact of the recent hike in petrol price by about `3 per litre, also pushed up the index of fuel and power by 11.63 per cent year-on-year during the week. The rise in index on account of increase in price of petrol was over 25 per cent. The RBI deputy governor, Mr Subir Gokarn, had last week hinted that more tightening monetary measures were likely to be taken by the apex bank at its next policy review.
This is due to headline inflation not easing as fast as the apex bank would like and the upside risks still remaining high.
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