Onion effect: Inflation runs into double digits at 12.13%

Returning to double digits, food inflation rose to 12.13 per cent for December 11, the third successive week of increase, with Finance Minister Pranab Mukherjee attributing high onion prices as one of the reasons.

"I am afraid there has been some upward movement of food items... Of course, the weekly fluctuations take place and one of the reason may be the high prices of onion, which (we already) have taken steps", Mukherjee told reporters.

The official data released today showed that for week ended December 11, food inflation rose by 2.67 percentage points from 9.46 per cent, touching a six-week high.

Food inflation pinched the common man's household budget, as prices of onion, fruits, egg, meat and fish, milk and vegetables became expensive. Economists feel this development may prompt the Reserve Bank to raise key policy rates.

The annualised price increase of onion worked out to 33.48 per cent, fruits -- 20.15 per cent, egg, meat and fish -- 19.35 per cent, Vegetables -- 15.54 per cent and milk by 17.83 per cent.

Onion prices rose 4.56 per cent on a week-on-week basis.

"The prices of onion must have impacted (inflation) to some extent. There are some increase in prices of milk in the last few weeks. So that must have impacted to some extent but we are on top of it," Cabinet Secretary K M Chandrasekhar said.

Continuing to battle against onion prices, which touched Rs 70-80 a kg in the last few days, a Committee of Secretaries, headed by the Cabinet Secretary, met this morning to take stock of the situation.

According to Chandrasekhar, the government is trying to put in place all the logistics and policy support measures to ease the onion prices.

These include moving of the staple vegetable by the railways and going in for duty free imports.

"I think it will ease very quickly...We have decided to move onion from different areas. There is a shortfall in Maharashtra, but Karnataka is reasonably good and Gujarat is producing quite a lot of onion," he said.

However, the extra burden on households on account of fruits vegetables and milk was at least partly made up by a modest decline in cereals-- 0.35 per cent. Within the cereals group, pulses dropped by 10.77 per cent, but the decline has to be seen against a sharp increase in prices last year.

Wheat also showed a decline of 5.14 per cent. Chandrasekhar said, "As far as international prices are are concerned, on rice, wheat and sugar we are fairly comfortably placed. We are not exporting rice. We have enough stock."

Yesterday, RBI Deputy Governor Subir Gokarn had indicated that the central bank revisit its pause in rate hike cycle and tighten monetary policy next month, as the headline inflation is not easing fast enough.

Although the overall inflation rate had declined in November to 7.48 per cent, from 8.58 per cent a month ago, economists feel that the rate of price rise would go up in December on the back of recent hike in petroleum prices.  

"The overall inflation for December may go up as food and fuel price index would rise over the month. Some moderation in food prices can be seen in mid-January," Deloitte Principal Economist Shanto Ghosh said.   

He felt the rising price rise would prompt the RBI to hike the repo and reverse repo rate by 25 basis points in its next quarterly review meeting in January.