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Food inflation has eased a bit from previous week bringing some cheers for the consumers but the level of reduction is too less to alleviate pressure on the RBI to issue a tighter monetary policy in the coming month. In the second week of the month of December, food inflation was at 18.65%, as reflected in the Government data. This was marginally down from 19.95% in the week continuing till December 5. However, this did not bring down the potato and pulse prices.
Food inflation has touched 10-week high the previous week following poor monsoon in 40 years and flood situation in some regions of the nation that affected the farm output massively. Prices of potato, for instance, increased more than 115% in comparison to last year. Lentils were sold at 42% high rates. The index was down primarily because of a fall in the prices of fruits and seasonal vegetables, wheat, spices and tea. Prices of fruits and seasonal vegetables came down by 2%, wheat 5 % and spices and tea 1% each.
Monthly price statistics for the month of November reflected manufacturing prices increased 4% annually, an indicator that firms can offer higher prices to customers on the grounds of rising economic recovery. The yearly wholesale price inflation that was 1.34% in October increased to 4.78% in November.
Experts have been saying that the yearly inflation could touch 8% towards the end of the financial year in March, more than the RBI’s prediction of 6.5%. Pranab Mukherjee, finance minister of India, said inflation is a challenge for the government. But, Montek Singh Ahluwalia, deputy chairman of Planning Commission, said a yearly inflation of 5 to 6% is not a matter of concern.
According to Ahluwalia, the price situation would also ease in the next months as supply of seasonal products gets better. "The price build-up is on speculation post drought. Stocks of cereals are adequate and prices can be moderated and it will be from January.''
The RBI, nevertheless, in spite of slight change in food prices, may still opt for a 50 basis points increase in cash reserve ratio. Else, the money banks may have to work in line with central bank for a day in order to check inflation.
The Times of India
December 25, 2009
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