JOIN USFood inflation, which stood at 16.35 per cent in the previous week, moved northward with the rise in prices of key food items like milk and pulses.
What is worrisome is that with ongoing rise in prices of essential food items coupled with growing apprehension of manufactured goods witnessing rise in prices in coming days, the overall inflation measured by the Wholesale Price Index (WPI) for March is likely to cross the double digit mark. The overall WPI-based inflation, which factors in variation in prices of food and non-food items, stood at 9.89 per cent in February.
Analysis of food inflation data for the week ended on March 27 shows that on an annual basis milk became costlier by 32.6 per cent, pulses became dearer by 32.60 per cent and wheat by 13.34 per cent. On a weekly basis, the index for food articles rose by 0.9 per cent with pulses and vegetables becoming costlier. Since the overall inflation has already breached the RBI’s projection of 8.5 per cent, RBI is likely to tighten money supply when it meets later this month for the review of its monetary policy, thereby making all sorts of borrowing, ranging from car and home loans to commercial loans more expensive.
Exit from stimulus
Significantly, RBI governor D Subbarao has indicated that the apex bank will continue its exit from monetary stimulus policy to check high inflation and ensure sustainable growth.
The ongoing rise in inflation is fast emerging as the most difficult economic challenge facing the government with the Finance Minister Pranab Mukherjee and the Deputy Chairman of the Planning Commission Montek Singh Ahluwalia both admitting that rising inflation was a matter of concern. Ahluwalia has noted that inflation, which is almost nearing double digit figure, has already crossed its “comfort zone”. He suggested that the RBI while reviewing its monetary policy would have to strike a balance between controlling inflation and protecting growth momentum.
“Now it (food inflation) is spreading to non-food items which implies that RBI may have to start tightening the monetary policy. Tightening monetary policy is something which may have to be done and that’s the only way we can proceed further,” Prime Minister’s Economic Advisory Council member G Govinda Rao said.