Food inflation near 20%

Wholesale food prices touched 10-year high with food inflation inching to 19.95 per cent for the week ended December 5, prompting Finance Minister Pranab Mukherjee to commit food imports to maintain supply in the domestic market.

Food inflation has been on the rise, primarily due to high prices of potato, other vegetables and pulses the whole of this calendar year, even when the overall headline inflation has been  in the negative territory.

Year-on-year food inflation stood at 10.28 per cent in the corresponding period in 2008 and even on this high base, there was a near 20 per cent increase in prices. Food inflation for the week ended November 28, 2009 was at 19.05 per cent.

Analysts expressed concern for consistently rising food inflation and attributed it to drought, speculative activities and supply side hurdles. Most economists expect a moderation with the Rabi harvest, which will enable the government to induce more foodgrains in the system.

The build-up of food inflation since the beginning of this financial year has been 19.71 per cent, as against 6.75 per cent in the previous year. High food prices have also pushed up the overall headline inflation as measured by the wholesale price index (WPI), which stood at 4.78 per cent. At the retail level, prices of food items have shown greater increase.

With sharp increase in food prices, the industry fears the Reserve Bank may hike policy rates to suck out liquidity, though analysts feel it may not have much impact on the prices.

Assuaging concerns, Mukherjee said, “Food prices are going up and this is an area of concern...We have to take appropriate measures to see what best can be done by augmenting the supply through imports.”

The Standing Committee on Finance in its report tabled in Parliament earlier in the day pulled up the Finance Ministry for not taking timely action to contain inflation and asked the government to put a temporary embargo on essential food items like onion, and amend the Essential Commodities Act to check hoarding and speculation. A host of steps, including zero import duty on wheat, pulses and crude edible oil and allowing import of various commodities like sugar and rice have already been taken by the government to tame food prices.

“The concern is that food inflation is rising despite the high base (of 10 per cent) prevailing in the previous year and, therefore, it is going to hurt even more. It indicates a general stagnancy in agricultural production, which has been aggravated by lack of monsoon, speculative activities and supply side concerns,” said D K Joshi, principal economist with research and ratings agency Crisil.

Inflation rate for potatoes stood at 136.39 per cent on an annual basis for the week. Prices of vegetables, pulses and cereals, which constitute the essential consumption basket, rose at high rates of 13.55 per cent, 40.81 per cent and 41.01 per cent, respectively for the week under consideration. The inflation rate for pulses and vegetables showed significant rise this year as compared to inflation rate of 12.71 per cent and 16.21 per cent in the corresponding period previous year.

“Food prices have been rising due to structural shortfalls in some items. Food stocks for other foodgrains like wheat are still at comfortable levels. With the release of stocks, some easing in the prices might be expected in the coming months,” said Shubhada Rao, chief economist, Yes Bank.

Higher minimum support price for farmers is cited as one of the reasons for increase in prices of foodgrains such as rice and wheat, the government said in the standing committee report. MSP for wheat had been increased by a mere 2 per cent, while that for paddy (rice) by 11 per cent. The government also said it would take steps to increase the availability of sugar by continuing with stock holding limit on bulk consumers for some more time.