Food inflation climbs to 17.65 pc

Food inflation rose to 17.65 per cent in the second week of April as essential items such as milk and rice remained costly.

This may push the overall inflation to double digits. The Reserve Bank on Tuesday raised key rates to squeeze money supply in order to tame inflation. The 0.43 percentage points rise in food inflation during the week ended April 10, from 17.22 per cent a week earlier, may provide more ammunition to the opposition to turn the heat on the government.

The main opposition BJP, on Wednesday, held a rally in the national capital to protest the unrelenting rise in prices. However, certain food items such as potatoes turned cheaper by over 30 per cent during the week because of a supply glut in many markets. Onion prices fell by over six per cent year-on-year.

However, prices of pulses were up 28.77 per cent, that of milk by 22 per cent, fruits by 18.81 per cent, wheat by 11.18 per cent and rice by 9.33 per cent. Analysts said food inflation would ease once the rabi (winter) harvest hits the markets by the middle of May and signs of a normal monsoon are indicated by the Meteorological Department, which will come out with the forecast tomorrow.

"We have to see the monsoon outlook to understand how it will ease out the inflationary expectations. Monsoon will decide the future trajectory of food inflation," Yes Bank Chief Economist Shubhada Rao said. Axis Bank Economist Saugata Bhattacharya said good rabi crops could bring about some moderation in food inflation. "Monsoon will play a deciding factor," he added.

Many economists fear that rising food prices will further push overall inflation further up, as manufactured products and fuel items are also witnessing inflationary pressure. "WPI inflation will remain around 10 per cent in April. If the pressure on food prices remain, inflation will move up," Crisil principal economist D K Joshi said.

The RBI raised key short-term rates and the amount banks set aside with it by 25 basis points in its annual monetary policy earlier this week. Many analysts feel rising inflation may prompt further tightening of the monetary policy by the apex bank.

"If the WPI remains sticky around 10 per cent it might prompt RBI to react. RBI is of the view that inflation will come down, if it doesn't RBI will not hesitate to act in between policies," Joshi said. The RBI too has hinted of further actions before the next policy review to tackle rising inflation.

"I will not rule out mid-cycle action because we do not know how the situation will evolve," RBI Governor D Subbarao had said.

While RBI has projected inflation to come down to 5.5 per cent by March end next year from the current level of 9.9 per cent, it cautioned that uncertain monsoon, volatile global crude prices and demand pressures may spoil its projections.

In the fuel inflation index, petrol prices firmed up by 18.06 per cent during the second week of April, while diesel became costlier by 15.81 per cent.