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Food inflation inches close to double-digit mark

New Delhi: Driven by higher prices of onion, potato and fruits, food inflation inched close to the double-digit mark at 9.8 per cent for the week ended August 13, prompting Finance Minister Pranab Mukherjee to describe the situation as ”disturbing”.

Food inflation, as measured by Wholesale Price Index (WPI), was up from 9.03 per cent in the previous week. It was over 14 per cent in the corresponding week of 2010.
As per the data released by the government today, onion price soared by 44.42 per cent year-on-year, while potato became 16.39 per cent more expensive during the week.
Fruits became dearer by 27.01 per cent and eggs, meat and fish by 13.37 per cent on an annual basis.

“The bad news is that inflation has increased… On the inflationary front, it is disturbing… I am more concerned about food inflation, which is perilously near double digits,” Mukherjee told reporters here.

During the week ended August 13, price of milk was up 9.51 per cent, while vegetables and cereals became dearer by 6.52 per cent and 5.22 per cent, respectively.

Mukherjee, however, said assessment should be made only after looking at long-term trend and that not much should be read in weekly inflation numbers.

“As I have always maintained, weekly inflation figures are variant. We should make an assessment on the basis of a relatively longer period,” Mukherjee said.
Meanwhile, experts said another rate hike by the Reserve Bank is likely as pressure remains both on food and non-food item prices.

“Inflation remains at an elevated level. We expect the RBI to continue with its monetary tightening and hike key policy rates by another 25 basis points at its September 16 mid-quarterly review,” Crisil Chief Economist D K Joshi said.

Headline inflation, which also factors in manufactured items, fuels and non-food primary items besides food, stood at 9.22 per cent in June.
The RBI has already hiked interest rates 11 times since March 2010, to tame demand and curb inflation.

Joshi said while pressure on certain food items like pulses will ease further, pressure will remain on some others like milk.

As per latest data, while most food items became expensive, pulses became cheaper by 5.56 per cent and the price of wheat was down by 2.80 per cent year-on-year.
Overall, primary articles recorded 12.40 per cent inflation for the week ended August 13, up from 11.64 per cent in the previous week. Primary articles have a share of over 20 per cent in the WPI.

Inflation in non-food articles that include fibres, oil seeds and minerals, stood at 17.80 per cent, compared to 16.07 per cent in the previous week.

Meanwhile, fuel and power inflation stood stable at 13.13 per cent for the week ended August 13, the same as in the week ended August 6.

“The price index for fruits and vegetables may display a further rise… related to supply disruptions in some areas, following heavy monsoon rainfall,” ICRA Economist Aditi Nayar said.

Both Nayar and Joshi, however, said a normal monsoon with cumulative rainfall to 1 per cent below the long period average as per latest data, suggests an improved outlook for the agricultural sector in the current year.

Seeking to allay concerns over the rate of price rise, Prime Minister Manmohan Singh had yesterday expressed confidence that headline inflation would come down to 6 per cent by the year-end.

“I am not an astrologer, but analysts have said that by the end of this year, inflation will come down to 6 per cent,” Singh had said during an Iftar dinner hosted by him.
The RBI and the Prime Minister’s Economic Advisory Council had projected headline inflation to remain high at around 9 per cent till October.

Food inflation was in double digits for most of 2010, but started to moderate from March this year.

It fell to 7.33 per cent in mid-July, before again rising to a four-and-a-half month high of 9.90 per cent in end-July.

The rate of price rise of food items has been highly volatile in the past few weeks.
In its Economic Outlook for 2011-12 released earlier this month, the PMEAC said while pressure from food inflation has fallen in recent months, the rate of price rice still remains quite high, with the possibility of a further surge in coming months.

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