Indian sugar mills association

Food Inflation at 10.6% may Fo

Date:	21 Oct 2011

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News ID:	600

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Food prices hit 25-week high raising spectre of another rate hike on Oct 25 Food inflation shot up to a 25-week high, moving again into double-digit territory and increasing the likelihood the RBI will raise interest rates yet again at next week`s monetary policy review. Food inflation for the week to October 8 rose to 10.6% from a year ago compared with 9.32% in the previous week, the commerce & industry ministry said on Thursday. Prices rose 0.4% on a week-onweek basis during the period under review, prompting a top government adviser to term the surge a matter of `concern`. Prime Minister`s Economic Advisory Council Chairman C Rangarajan, however, told a conference of economic editors in New Delhi that prices might ease in the coming months. “I believe that even if in this particular week it has risen, it will come down. I believe the monsoon has an effect on the availability of foodgrain, which you will see in the months ahead,” he said. But that did little to dissuade economists and market analysts from forecasting another 25-basis point rate increase, the thirteenth since March 2010. The central bank is due to review its monetary policy on October 25. It has raised rates by a cumulative 350 basis points over the past 18 months in a bid to control persistently high food inflation which has spread to other sectors. “Going by the overall figure for inflation, another rate hike is on the cards,” said DK Joshi, chief economist at ratings firm Crisil. Food articles have a 14.3% weightage in the wholesale price index and the latest spike in food inflation was largely driven by vegetable prices that rose 17.59% over the year-ago period. Eggs, meat & fish turned dearer by 14.10%, fruit turned costlier by 12.39% and milk by 10.8%. On a week-on-week basis, vegetable prices rose by 1.66%, fruit by 0.11%, milk by 0.41% and eggs, meat & fish by 0.52%. Inflation in pulses stood at 7.42% from a year earlier while its price declined marginally by 0.05% over the previous week. Prices are Unlikely to Come Down Several economists disagreed with Rangarajan`s forecast of prices easing in the coming months. “Cost of production has gone up and we are unlikely to get any respite in the near term,” said Madan Sabnavis, chief economist at Mumbai-based ratings agency CARE. He said pulses could be a drag this year as its production is expected to fall. Aditi Nayar of ICRA predicted that food inflation will hover between 9% and 10% in October. The RBI`s monetary tightening policy has attracted criticism, with some analysts saying it has dampened growth, while failing to effectively check inflation. The government`s Chief Economic Advisor Kaushik Basu has in the past said rate increases have not been very effective in tackling inflation and urged monetary authorities to think out of the box.

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