Wholesale price-based inflation moderated to 8.23 per cent in January from 8.43 per cent a month ago, despite food inflation rising over two percentage points.
The impact of food prices will however be felt in February with a sharp decline in prices of onion and other vegetables this month.
The government has said inflation will fall to seven per cent by March-end, but economists pointed out that food prices have to fall further to get to that number.
Food inflation during the month rose to 15.65 per cent from 13.55 per cent in December.
The first meeting of the inter-ministerial group on inflation — constituted by Prime Minister Manmohan Singh when onion prices had gone up — headed by Chief Economic Advisor Kaushik Basu is expected to be held on Tuesday.
“Food article inflation in January was more than in December, 2010. However, overall food inflation is in single digits and stands at 9.3 per cent (when combined with processed food item inflation),” said Finance Minister Pranab Mukherjee in a statement.
He said the problem of inflation continues to be a challenge, but expressed hope that overall inflation will come down close to seven per cent by the end of this financial year.
“Fortunately, food prices were in the decline in the last weeks of January and we still have two months to go before the end of this fiscal. This target (seven per cent) is still not good enough and our fight against inflation will continue,” said Mukherjee.
Crisil chief economist D K Joshi said food prices have to fall sharply to meet the seven per cent target. “The target is difficult to reach, but not impossible.”
In fact, a sharp fall in prices of onions in the wholesale markets and farmers’ protests in parts of Maharashtra prompted the agriculture ministry to suggest a lift on ban on exports of vegetables.
The government has so far withdrawn the restrictions on export of the Rose and Krishnapuram varities grown in Karnataka. Similarly, it eased the ban on non-basmati rice.
Joshi felt RBI would continue to tighten monetary policies, even if inflation comes down to seven per cent because it is above the RBI comfort zone of 4-5 per cent.
News agency PTI quoted Prime Minister’s Economic Advisory Council Chairman C Rangarajan saying: “RBI will have to take a view looking at the level of inflation. It was still at an uncomfortably high level. Some action, continued action, by the RBI (to tighten monetary policy) may be required.”
Inflation in January fell following a dip in manufactured items to 3.75 per cent in January from 4.46 per cent in the previous month. Food inflation in manufactured items (processed food) was negative at 1.03 per cent in January compared to 0.35 per cent in the previous month. Sugar prices continued to decline with wholesale price inflation standing at around negative 15 per cent in Janaury against around 10 per cent a month ago. However, edible oil continued to be costlier with inflation rising to 7.16 per cent from 5.26 per cent
Fuel and power inflation rose to 11.41 per cent from 11.19 per cent due to higher prices of petrol.
