Food inflation at 19.95%, RBI may hike rates

Food price inflation hovered around a decade's high of 19.95%, triggered by a short supply of essentials due to lower farm production, following drought and floods in various parts of the country during the year

Food inflation hovered around a decade's high of 19.95% as of 5th December, driven by costlier vegetables, pulses, milk, wheat and rice, even as economists said they expected the Reserve Bank of India (RBI) to hike rates to tame price rise, reports PTI.

On an annual basis, potato prices more than doubled at 136% and pulses became costlier by over 40%, while onion prices rose 15.4%. Other food items that became dearer include wheat (14%), milk (13.6%), rice (12.7%) and fruits (11%).

Food price inflation was triggered by a short supply of essentials owing to lower farm production following drought and floods in different parts of the country during the year.

The comprehensive wholesale price inflation, which includes manufactured products in addition to food and fuel items, soared to 4.78% in November from 1.34% in October.

"By the end of March 2010, it (inflation) could be close to 7%," prime minister's economic advisory council chairman C Rangarajan had said earlier this week. "We need to watch for behaviour of prices in December. Some action will be possibly taken by the RBI, which can have a moderating effect on inflation," said Mr Rangarajan, a former governor of the RBI.

The RBI, which keeps a close watch on inflation and growth, is slated to come out with its third quarterly review of monetary policy on 29 January 2010.

The RBI had earlier projected inflation towards the year-end at 5%, but later raised it to 6.5%.
Finance minister Pranab Mukherjee has also said that rising inflation was a matter of concern. "There is inflationary pressure, particularly in food items. Even wholesale prices have gone up substantially, (with) about 19% inflation in food (items)," the minister said.

Food inflation in the last week of November stood at 19.05%.

On a weekly basis, the spike in prices was significant with urad and spices rising by 3% while milk rose by 2%. At the same time, maize, barley, pork, masur and wheat were costlier by 1% each. However, the prices of poultry chicken declined by 10% and tea by 2%. Among the non-food articles, raw jute turned expensive by 11% and mustard seed by 4%.

The fuel index declined during the week due to lower prices of aviation turbine fuel.

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