Food price rise keeps inflation risk alive

Food price rise keeps inflation risk alive

A drop in the prices of manufactured goods brought India’s headline inflation in March marginally down from the February figure, but a spike in the cost of food articles and suppressed fuel prices kept the risk to inflation on the upside in the coming months.

The wholesale price index (WPI) was 6.89 per cent in March, a notch lower than 6.95 per cent in February, but food prices rose 9.94 per cent on year in March, compared with a 6.07 per cent rise in the previous month.

A visibly concerned Finance Minister Pranab Mukherjee called it a disturbing factor and said the government would address the supply-side problems. He hoped the food prices would moderate in the coming months.

Food articles have 14.3 per cent share in the WPI basket. Vegetable prices in March shot up 30.57 per cent, from 1.52 per cent in February. "Food inflation in the month of March has increased, which is a disturbing factor. I do hope in the course of time it will moderate. We shall have to be alert on it. Of course, the supply side constraint substantially affects food inflation. We will be addressing that," Mukherjee said.

Simultaneously, a report by RBI released a day ahead of the credit policy said that though the overall inflation had moderated, there was still an upside risk. The central bank, however, indicated a rate cut in its policy review, stating that the monetary policy would
need to support growth without risking external balance or inflation.

Softening in the prices of manufactured goods has raised expectations that the RBI will cut the interest rate on Tuesday, for the first time in three years, to revive economic growth.

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