RBI Says Food Inflation Spreading To General Economy (11-Mar-2010)
The Reserve Bank (RBI) stated that high inflation due the food prices has commenced spreading to the broader economy.
But, however, it is expected to ease on account of an expected moderation in food prices.
Meanwhile, RBI Deputy Governor, Subir Gokarn said that inflation is now broad-based and spreading to areas other than food.
That is, especially manufacturing and is not just restricted to food inflation.
Food inflation eased slightly to 17.81% during the last week of February.
But, however, since petrol and diesel prices have risen sharply due to the hike in duty rates, it may not soothe overall inflation.
Breaching the RBI''s end-March projection of 8.5%, the wholesale price index (WPI) inflation increased to 8.56% in January.
Gokarn added that food price-inflation is expected to ease moving ahead due to an expected good Rabi crop, although certain commodity prices may stay high.
Food price index increased 17.81% in the 12 months to Feb 27, while the fuel price index was up 11.38%.
Earlier, it was said that the government is in a tight spot by its allies and opposition parties alike due to the concerns over food inflation.
But, however, chief economic advisor Kaushik Basu came out supporting the government saying that food inflation will moderate by April.
He said that food inflation is a root cause for concern but is banking on a better rabi crop.
He added that the food inflation is on a sluggish downward trend and it would have been more visible if there wasn''t this base effect.
Meanwhile, the government stated that the tax proposals introduced by Finance Minister Pranab Mukherjee in his Budget for 2010-11 will marginally stimulate inflation.
But, however, it would not put any pressure on interest rates.
Finance Secretary Ashok Chawla stated that they don''t see pressure on interest rates from fuel price hike when he was asked if the rise in inflation would put pressure on interest rates.
The FM had said that hike in the petroleum prices from February 27 would lead to 0.41% hike in inflation.
Previously, the Economic Survey on Feb 25 cautioned that the total prices would rise further in the next few months.
It also partially blamed poor food management policies for double-digit food inflation.
Meanwhile, higher food prices were primarily due to the supply-side constraints, compounded by poor monsoons in 2009.
Earlier, as prices of pulses and vegetables eased during the week, food inflation declined to 17.58% for the week ended February 13.
The wholesale price-based inflation declined after rising for 4 consecutive weeks.
Inflation was at 17.97% in the previous week.
Additionally, Food inflation increased marginally to 17.97% for the week ended February 6 due to the rising prices of potatoes and onions.
The wholesale price-based food inflation rose for the fourth consecutive week where ithe previous week it stood at 17.94%.
Potato prices were up 57.67% from last year''s level, while onions were dearer by 29.92%.
The inflation for primary articles, which include food and non-food items in raw form, rose to 16.23% during the week from 15.75% a week earlier.
The price index for food articles moved up 0.1% due to higher rates of moong and poultry chicken (3% each), while rates of fish marine rose by 2% and barley and wheat became costlier by 1% each.
Earlier, the Reserve Bank of India stated that it would abide by with its projection of inflation standing at 8.5% by the end of the current fiscal.
This they will do even as rate of price rise has already breached the central bank''s target.
RBI said that monitoring inflation is a continuous process and they still stand by that inflation will be at 8.5%, as projected, by March 2010.
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