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Food inflation soars,govt admits to lack of tools to control prices

Pakistan bans onion exports,no quick respite seen

Written by Express News Service | New Delhi |
January 7, 2011 2:40:43 am

Food inflation jumped unexpectedly to 18.32 per cent for the week-ended December 25 on the back of soaring onion and other vegetable prices,and the government admitted,for the first time,it did not have all the tools to control inflation. In the previous week,food inflation stood at 14.44 per cent.

Home minister P Chidambaram,who was earlier the finance minister,had on Wednesday expressed apprehension if the government had adequate policy tools to rein in rising food prices. Basu,when asked the same question,told reporters,“Absolutely.” “It is utter mistake to think that it is fully within the control of the government to move prices of food up and down. Government can give signals,can intervene strategically to keep the situation as much under control as possible.”

During the week,onion prices rose a startling 82 per cent followed by vegetables,which jumped 58.85 per cent. Prices of protein-rich items like milk increased 19.59 per cent and of egg,fish and meat 20.83 per cent. Chidambaram,speaking to reporters at a public function,had said,inflation was the worst kind of tax and said he was not sure if “we understand all the factors that contribute to price rise”.

Finance minister Pranab Mukherjee today said three-fourths of food inflation is explained by inflation in vegetables and about one-fourth by inflation in milk. While he asked all states to urgently remove supply bottlenecks from items fuelling inflation,he said a final assessment should be done only after the monthly figures are out.

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The overall inflation in November was 7.48 per cent,down from 8.58 per cent a month ago.

Its unlikely though that onion prices will moderate any time soon with Pakistan banning onion shipments through land route of Wagah border. Former Chief Statistician and principal advisor in the Plan panel Pronab Sen said the government cannot do much about these because “it has no real presence in anything other than foodgrains”.

With inflation showing no signs of moderating,it is widely expected the Reserve Bank of India will start further tighten its monetary stance. Having raised policy rates six times last year,it had paused during the December review,but all bet on a hike when it is scheduled to undertake the quarterly review on January 25.

India Inc fears exactly this. Reacting to the inflation numbers,industry chambers were unanimous in stating that rising policy rates will only end up hurting the industry and have little impact on food inflation,that was more of a supply problem.

So,will RBI step in? Sen said on the food inflation side,the RBI may not take any action. However,“monetary policy has to look at more generalised events like inflation happening on the non-food items.” Therefore,there is a possibility it would intervene to correct that,he said.

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