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Food inflation inches up to 15.57%; experts see more rate hikes

New Delhi: Dearer vegetables pushed up the food inflation marginally to 15.57% for the week ended 15th January from 15.52% in the previous week, prompting experts to say that the Reserve Bank of India (RBI) may go for yet another round of rate hike in its mid-quarterly policy review in March, reports PTI.

Food inflation was 20.07% a year ago.

Based on price movement in the wholesale market food inflation rose by 0.05 percentage points for the week ended 15th January after declining for two consecutive weeks.

While vegetable prices soared by 67.07% on an annual basis, onions became expensive by 111.58%.

Onion prices, however, have declined recently on account of the government initiatives like ban on its export and making available the essential kitchen item from state-owned entities.

Besides vegetables, fruits, milk and other protein-based items became expensive during the week. The prices of wheat and pulses, however, witnessed a decline.

"We believe some more rate hike is on the cards and the inflation rate is not showing signs of abatement," Crisil chief economist DK Joshi said, while commenting on marginal rise in food inflation.

Expressing similar opinion, ICRA economist Aditi Nayar said: "The RBI is likely to hike its short-term lending and borrowing rates by 25 basis points in its March review and again by the same rate in the first quarter of 2011-12."

The central bank in its quarterly review of the monetary policy on Tuesday raised the short-term lending (repo) and borrowing (reverse-repo) rates by 25 basis points to check inflationary expectations.

Given the current trend of price rise, RBI raised the March-end forecast of headline inflation to 7% from 5.5% earlier.

The mid-quarterly policy will be announced by the RBI on 17th March.

The experts, however, feel that food prices will moderate in the coming months.

"Going ahead we believe food inflation will come down," Mr Joshi said, adding that food inflation largely depends on seasonal factors, "especially vegetable prices."

According to Ms Nayar: "Food prices are extremely volatile due to the perishable nature of many commodities. We believe that by the end of January the prices of vegetables will come down and this will show in the food inflation figures by February."

Experts, however, cautioned against rising crude oil prices in the international market and said it could play a spoilsport in the overall inflation.

"The petroleum sector will play a crucial role and high global crude prices will impact the overall inflation rates," Mr Joshi added.

An early onset of winter leading to massive demands in Europe and the US, coupled with speculative pricing, has taken global crude prices to a two-year high of over $90 per barrel.

During the week under review, prices of fruits went up by 16.40% while milk became expensive by 12.44% on an annual basis.

Prices of eggs, meat and fish went up by 13.58% year-on-year.

Cereal prices, too, went up marginally by 0.53%, with rice going up by 2.79%.

However, wheat and pulses became cheaper on an annual basis by 5.75% and 14.07%, respectively.

In an indication that spike in food commodities is becoming ingrained into the wider economy, in the non-food category, the prices of fibres and minerals went up by 47.23% and 19.52%, respectively.

Fuel and power also became dearer by 10.87% year-on-year.

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