Food inflation at 18%

Food inflation rose for the third straight week to touch almost 18% in January-end, fuelled by costlier potatoes and pulses. Food inflation rose by 0.38 percentage points during the week ended January 30 from a week ago. This has given rise to expectations that the Budget will continue with the zero import duty regime for wheat, rice, pulses, sugar and edible oils but added to concerns that raising motor fuel prices or deregulating them at this point will further jack up prices. Food inflation had started showing signs of receding after touching the decade’s high of about 20% in December. But it has been on the rebound again since the last three weeks. In the week under review, inflation rose mainly because potatoes and pulses were up 40.57% and 41.24%, respectively, from their year-ago levels. Economists say along with fuel inflation, food inflation is putting upward pressure on the overall inflation, already at 7.31% in December. The index for fuel group rose by 1.2% in the week due to higher prices of non-coking coal (15%) and coking coal (11%). This has also caused concern in some quarters of the government over freeing motor fuel prices or raising them at this point. On annual basis, vegetable prices have increased by around 21%, while wheat became dearer by over 15%. The price index for food articles, on the weekly basis, rose 0.3% on account of costly fruits and vegetables (2%), while fish marine, spices, condiments and bajra became dearer by 1% each. The RBI, in its quarterly monetary review, asked banks to keep aside more cash with them. It hiked cash reserve ratio (amount banks have to park with the RBI overnight) by 75 basis points to 5.75%, sucking out Rs 36,000 crore from the system. Though food inflation has been back on a northward trail, the government and its functionaries remain confident the prices will come down. According to RBI deputy governor Subir Gokarn, food inflation is expected to moderate towards the year-end, but only “in the event of normal monsoon’’. Last week, PM Manmohan Singh told the chief ministers’ conference that the worst was over and prices will stabilise soon.