Finance minister Pranab Mukherjee on Monday said high demand for protein-based food articles had led to an increase in food inflation.
“There has been a recent spike in food inflation in past three weeks. The principal reason is high demand for vegetables, meat and egg,” Mukherjee said.
According to data on food inflation published every week, prices of vegetables rose 29 per cent, milk prices 12 per cent and egg, meat and fish prices were up by 13 per cent, compared the year-ago period. Mukherjee said even though India was the largest producer of milk, there was a shortage of milk in the country.
“No country in the world can feed 120 crore-plus people. Therefore, in areas of cereals like wheat, rice, bajra and other grains, pulses, edible oil, sugar, milk, egg, meat, vegetables and fruits —there is no alternative than to produce, preserve, process and distribute,” he said.
Driven by costlier protein items, food inflation accelerated to a nine-month high in late October.
The food price index rose an annual 12.21 per cent in the week to 22 October, compared with 11.43 per cent in the previous week. This is the third consecutive week that food inflation is in double digits.
“Food inflation is a matter of great concern for all of us,” Mukherjee said,
Economists expect the wholesale price index (WPI) based inflation to be high on the back of high food prices. In September 2011, WPI was up 9.72 per cent as compared to a year ago.
Reserve Bank of India (RBI) expects inflation to ease to 7 per cent by the end of this financial year. In its mid-yearly review of monetary and credit policy, RBI raised the policy rate by 25 basis points to 8.5 per cent in order to clamp down inflation and inflationary expectations. RBI has increased policy rate by 375 basis points in thirteenth tranches since March 2010.
“We expect rate cuts around mid-2012– interest rates are well above “neutral” so we expect the RBI to cut rates if, as expected, inflation falls to below 7 per cent,” said economists at Deutsche Bank in a report. They expect rate cuts of 100 basis points starting June 2012.
