Mumbai, Dec 11: Food prices increased to a high of 19.05 per cent in the last year with a 0.7 per cent increase during the last week. Although last week’s numbers are a continuation of the same story told since the summer drought, which sparked the sudden rise in food prices, there is hope among market experts that last week marked a peaking of food inflation, and returns in mid-December would show a relief in prices.
The reduction of agricultural production bumped the food articles index to 291.2 from 289.2 due to higher prices of moong, condiments and spices and inland fish, all rising from two to three per cent. In response, RBI Governor D Subbarao said the rising prices could lead to inflationary expectations and that monetary policy would have to take the trend into consideration.
Economists expect some marginal action from the governor, perhaps with the absorption of in the rage of 50 basis points of the cash reserve ratio, said HDFC chief economist Abheek Barua. “I think he’s really keeping his options open,” he said of Subbarao. “It would say that the RBI is not completely indifferent to the source of this buildup, but it would also not have an impact on interest rates, leaving enough liquidity in the system for banks to continue lending at current rates.”
The wide picture will paint last week’s numbers as the worst of the worst, hopes Barua, as this week’s totals may show some relief in year-to-year inflation. “My understanding is that there could be some stability in the vegetable and food category,” he said. “We’re entering the season where we should see an improvement in the price situation.”
–Agencies