Fuel index on rise, too; RBI may raise rates in Jan review, say economists.
A day after the Reserve Bank of India (RBI) stated that risks from inflation continue to mar economic growth, wholesale food inflation was declared to have reached double-digit levels, at 12.13 per cent, for the week ended December 11, the highest in six weeks.
This was primarily due to the rise of prices of vegetables and other perishables during the week. Fuel inflation also rose marginally to 10.74 per cent from 10.67 per cent in the previous week.
These inflation numbers have come despite a very high base effect in 2009, as food inflation had, during the corresponding period last year, touched a 20-year high of 21.13 per cent. Food inflation had started moderating since the second week of October, due to increased supply with the kharif harvest starting to come into the market.
It had come down to single digits during the third week of November and stayed there for three weeks. In the previous week, ended December 4, food inflation was 9.46 per cent.
“I am afraid there has been some upward movement of food items and certain other items in the WPI inflation index. Of course, weekly fluctuation takes place and one reason may be the high prices of onions, for which we have taken steps,” said Finance Minister Pranab Mukherjee.
More than expected
The numbers have been more than the anticipation of analysts, who had broadly expected food inflation to gradually show a moderating trend. Most do say the inflation scenario will continue to pose risks, as the impact of the recent diesel price rise and a further rise in prices of vegetables will impact the index in the coming weeks. Most accord the sharp rise in food prices to reduced supply due to unseasonal rains in many parts of the country.
“Food price inflation accelerated sharply on the back of rising prices of vegetables, following unseasonal rainfall in parts of India. Higher prices of vegetables, fibres and petrol are expected to impart pressure on inflation, which is unlikely to register a notable decline in December,” said Aditi Nayar, economist at Icra.
Economists also voiced concern over consistently accelerating inflation in the non-food category. The rate here was 22.4 per cent during the week.
“The inflation in the non-food category will continue to rise, due to hot money flowing into the system. Overall, I do not expect inflation to fall substantially. It would start rising earlier than August 2011, as government borrowing is also expected to go up in the first quarter of the next fiscal. Structural problems in food inflation will also not disappear,” said Siddharth Shankar, economist with Delhi-based financial services firm Kassa India.
RBI action
The general view of economists is that as inflation is not showing any significant and consistent sign of moderation, the Reserve Bank of India will take action on rates in the monetary policy review in January, aimed at controlling inflationary expectations.
“It is quite a negative surprise. The momentum is back in the primary articles’ inflation, particularly food. Going forward, we do see incremental pressure pushing the headline inflation on the primary articles significantly up. Concern has already been voiced by the RBI yesterday. This adds to that. We would look at a likely January rate hike,” said Shubhada Rao, chief economist with YES Bank.
During the week, vegetables registered the highest rise, of 11.32 per cent. Prices of potatoes and onions rose by 9.5 per cent and 4.56 per cent, respectively. Those of eggs, meat and fish rose by 2.46 per cent during the week.
Fuel inflation was 10.74 per cent during the week, as compared to 10.67 per cent in the previous week. On a sequential basis, the price of products in the fuel index rose by 0.07 per cent. The impact of the increase in petrol by nearly Rs 3 a litre, implemented last week, is expected to push the index further upwards in the coming week.
