Food inflation, as measured by the Wholesale Price Index (WPI), declined by a significant 3.98 percentage points to 12.92 per cent for the week ended June 19 due to a high base effect and timely arrival of monsoon rains.
The inflation numbers are down from 16.9 per cent during the previous week as the rate of rise in prices of cereals, pulses and poultry showed major deceleration during the week under consideration.
“The monsoon has been reasonably good and is 60 per cent more than last year till now, so this has probably improved the supplies of perishables and foodgrains. Food inflation will now come down but the problem will crop up from the non-food sector,” said Rupa Rege-Nitsure, chief economist, Bank of Baroda.
However, as the week-on-week figures continued to show an increase of 0.3 per cent in overall prices of food articles and as annual rate of inflation is calculated on a year-on-year basis, the statistical base effect has played a major role in showing a relatively low inflation rate during the week.
“The base effect is of course playing a role,” said an official in the Ministry of Statistics and Programme Implementation on condition of anonymity.
“The inflation numbers for food have shown an increase when compared on a week-on-week basis. The good part is that the buildup of inflation is still not as high as it was last year; the week-to-week rise is also less as compared to last year,” said Sidharth Sankar, economist with financial services provider KASSA.
The decline in the inflation rate might act as a cushion for the government, which has recently increased prices of fuel products even as the economy is going through an inflationary cycle. The decline is in line with the constant statements of top government officials like Planning Commission Deputy Chairman Montek Singh Ahluwalia, Chief Economic Advisor Kaushik Basu and outgoing Chief Statistician of India Pronab Sen, who had said food inflation would significantly drop in the coming months.
Analysts, however, continue to be wary of overall inflationary pressures, as the numbers will reflect the effect of the fuel price rise going ahead, which is expected to push the WPI index up by around 90-110 basis points.
“The current decline is probably the lagged impact of a better winter crop and good monsoon, which have eased the prices of cereals and other food grains. Going ahead, perishables like fruits and vegetables might see an upward movement due to high freight rates, while the overall movement (food inflation) would depend on the monsoon,” said Crisil chief economist D K Joshi.
Joshi expects food inflation to come down to low single-digit numbers by the end of the current financial year, even as the overall headline inflation might breach the central bank’s target of 5 per cent by then.
Food inflation has been constantly clocking high double-digit numbers (over 15 per cent) since September, before peaking in the second week of December at around 20 per cent, and then easing up to 16 per cent.
Fuel inflation during the week also slowed down marginally and stood at 12.90 per cent as against 13.8 per cent in the previous week and at 12.42 per cent during the corresponding period last year.
The inflation rate for cereals and pulses stood at 5.36 per cent and 31.57 per cent respectively as against 13.42 per cent and 18.53 per cent during the corresponding week in 2009.
On an annual basis, the prices of potatoes and onions declined by 39.61 per cent and 7.36 per cent, respectively. The inflation rates for fruit and vegetables stood at 8.74 per cent and 1.17 per cent respectively as compared to 5.09 per cent and 25.19 per cent last year.
