Food inflation eased marginally to 12.47 per cent for the week ended July 10 as some essential items like vegetables turned cheaper, but experts said it may not deter RBI from hiking short-term rates in its upcoming monetary review.
However, petroleum product prices remained flat week-on- week as the government decision to raise fuel prices had only led to one-time hike in these rates. The fuel, power, light and lubricants inflation remained intact at 14.27 per cent.
But the fuel price hike could lead to indirect impact on inflation and this cascading impact will be felt in near future. Analysts said that the decline in food inflation augurs well for times to come and inflation is likely to go down further due to good monsoon.
They also attribute fall in inflation by 0.34 percentage points from 12.81 per cent in the previous week to the high-base effect. Food inflation had stood at 11.93 per cent at the same time last year.
"No doubt the base affect is responsible for it. Besides, monsoon is progressing and with a good production we can expect the inflation to decline further from now on," Prime Minister's Economic Advisory Council (PMEAC) member Govinda Rao said.
On weekly basis, pulses prices declined by 0.84 per cent, vegetables by 0.13 per cent and wheat by 0.11 per cent. However, poultry chicken, condiments and spices, milk, gram and river fish turned expensive over the previous week.
Even as food inflation declined, it remained at elevated level of over 12 per cent, despite high inflation last year. Year-on-year, a number of essential items like pulses, fruits and milk remained quite expensive.
Pulses prices rose by 23.79 per cent, milk by 17.33 per cent and fruits by 10.02 per cent. Some economists said that not much should be interpreted from the weekly fall in inflation as these minor changes would continue and any genuine decline in inflation would come only from September.
"These are minor changes. And we have been seeing such minor ups and downs for some weeks now. So it is better not to read much in the week-to-week food inflation figures... From September, we expect a steep decline in the food inflation figures with a good monsoon leading to rising productivity," Crisil Chief Economist D K Joshi said.
As such, economists expect RBI to further jack up borrowing costs by raising short-term rates.
"The focus will remain on containing inflation. We expect the RBI to hike the short-term lending and borrowing rates by 25 basis points at its policy review meeting on July 27," Joshi said.
