No respite,inflation at 10-month high

RBI may take corrective measures in upcoming review of the monetary policy.

Rising onion prices and protein-based items drove food inflation to a 10-week high of 14.44 per cent for the week ending December 18,firming the belief that the central bank may take corrective measures in upcoming review of the monetary policy in January.

Even as the staple of Indian households such as rice,cereals,wheat and pulses,witnessed a negative growth in prices,prices of vegetables and protein-based products like milk,eggs and fish,shot through the roof. Food inflation rose for the fifth consecutive week mainly due to onion prices,which rose by almost 40 per cent on an annual basis touching Rs 75-80 per kg in the retail market. While the protein-based products saw a price rise in the range of 17 to 30 per cent.

This is an area of concern no doubt8230; there has been real increase in the prices of certain food items. We are looking into it, finance minister Pranab Mukherjee said adding that as regards onion,the government has taken steps to contain the prices. However,The fluctuation in milk,fruit,vegetable and certain commodities have contributed to the inflation. We are waiting for the full monthly figure, Mukherjee said.

The government banned onion export and reduced customs and countervailing duty to zero for bridging the supply-demand gap in onions. The finance minister that though there are weekly variations,But I am still holding that year-end inflation may be around 6.5 per cent. Earlier,Prime Minister Manmohan Singh had indicated that inflation will come down to 5.5 per cent by the end of the current fiscal

During the week,food inflation rose by 2.31 percentage points from 12.13 per cent in the previous reporting week,with price of cereal declining marginally by 0.70 per cent year-on-year,while pulses fell by 10.79 per cent. Potato prices also declined on an annual basis by almost 24 per cent. In fact,except vegetables,most of the items,moved marginally. Food inflation was this high for the week ended October 9 when it was 15.53 per cent.

Earlier,the government had expected a moderation in inflation due to normal monsoon but food inflation started firming up due to rising onion prices after loss of crop in Maharashtra on account of unseasonal rainfall.

D K Joshi,chief economist of credit rating agency Crisil said the vegetables are highly volatile and protein-based items are sticky. So,the inflation will remain high for some time. The central bank may raise key rates in January in the mid-quarter review, he added.

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RBI Deputy Governor Subir Gokarn had last week indicated that more tightening monetary measures were likely to be taken by the apex bank at its next policy review.

As regard the impact of fuel price hike on inflation,Joshi said that global fuel prices will mainly determine the fuel inflation situation in the country and will remain a challenge for the policymakers through out 2011. The government has already deferred any decision on raising prices of diesel despite global crude oil prices soaring to 92 per barrel.

The recent petrol price hike by about Rs 3 per litre,pushed up the index of fuel and power by 11.63 per cent year-on-year during the week. The rise in index on account of increase in price of petrol was over 25 per cent.