Food inflation climbed to an almost nine-month high of 12.21 per cent for the week ended October 22. It rode on escalating prices of tomato and protein-based items due to supply shortage that aggravated amid surging demand during the festival season.
Tomato prices went up by 88 per cent during the week on the top of a 55 per cent rise last week. This has brought in a sense of deja vu vis-a-vis the situation from late 2010 to earlier this year, when the country saw a huge upward movement of onion prices. The government’s early-warning system, it seems, has yet to work this time as well.
On its part, the finance ministry has now pinned hopes on good kharif crops. Encouraging results from the farming sector, it believes, will calm down prices by this month-end.
This is the third month in a row that food inflation has remained in double digits. It means that the headline number for October will also be high — unless the rate of price rise in manufactured products declines substantially, which seems unlikely.
Overall, inflation stood at 9.72 per cent in September, which was a high number despite moderation. In the previous week, food inflation stood at 11.43 per cent.
Pranab Mukherjee called the inflation in double digits for three consecutive weeks a matter of “grave concern”. Food inflation is hovering “dangerously above” the double-digit figure, he said, but claimed that festival season demand only contributed to the recent rise in prices. Now, a prospective diesel price hike may put further pressure on food inflation.
The Prime Minister’s Economic Advisory Council says a phase when inflation shows some decline will be the best to enact its diesel price rise plan. The food inflation numbers are expected to start easing from this month or next, notes its chairman C Rangarajan.
The week under review saw inflation in fuel and power subsiding to 14.50 per cent from previous week’s 14.70 per cent.
The base effect also came into play to push up food inflation, which declined to 13.55 per cent for the corresponding week last year from 14 .20 in the previous week.
This could also be one reason for a rise in inflation this time around. “Yes, we can say to an extent that it is the base effect,” adds Rangarajan.
Vegetables recorded a surge in inflation from 25 per cent last week to 28.89 per cent during the week ended October 22. This could be largely attributed to tomato, despite its minuscule weight of 0.26 per cent in overall inflation and 1.8 per cent in food. Analysts attribute rise in tomato prices to hefty late rainfall that harmed standing crops in areas like Himachal Pradesh.
Potato also showed a rising trend in inflation, moving up to 0.98 per cent after falling in the negative territory last week to -0.45 per cent. On the other hand, the rate of price rise in onion fell for another week, keeping it in the negative zone for the fourth successive week at -20.33 per cent from -18.93 per cent last week.
“Fears remain that supply-side bottlenecks continue to be a critical factor — as in the last fiscal,” says Anis Chakravarty Director, Deloitte Haskins & Sells.
“Expectations are that food inflation will moderate in the beginning of the last quarter.” Headline inflation and efficacy of monetary policy, he adds, will continue to be a major source of concern.
Protein-based items continued to be expensive. Egg, meat and fish saw a spurt in inflation to 13.36 per cent — up by 1.54 percentage points, while inflation in pulses and milk was also on a rise. Inflation in cereals fell for the fourth week in a row, standing at 4.13 per cent versus 4.63 per cent the week before. Analysts have been calling policymakers to encourage farmers to grow non-cereal items in large quantity, where demand is putting pressure.
Early this month, RBI had raised policy rates — the 13th time since April 2010. The trend may pause if inflation starts declining from next month.
