INDIA INFLATION: fueled by costly food prices

Driven by a relentless rise in food prices, the annual inflation rate soared to 1.21 percent for the week ending 10 October 2009, a rise of 0.29 percentage points from the level of 0.92 percent in the week before. This was the highest rise in five months.

Prices of sea fish rose by 14 per cent, moong by five per cent, rice by three per cent, and urad, arhar, wheat by one per cent each. However, prices of fruits and vegetables declined by one per cent each. Potato prices swelled 104 per cent in the week ending 10 October from a year earlier, sugar prices rose 45 per cent and pulses 22.8 per cent. Rice prices rose by 12.7 per cent and milk by 10 per cent.

Consumer prices paid by farm workers rose 13.19 per cent in September from a year earlier and those paid by industrial workers climbed 11.72 per cent in August. Food prices are rising on the back of deficient monsoon rains that badly hit farm output.

Easing of the current monetary policy stance?

Experts, including the Prime Minister’s economic advisory panel, expect inflation to reach 6 percent before the year ends. Though the rise in inflation was faster than anticipated, experts do not expect the RBI to disturb bank rates before its scheduled credit policy review on 27 October.

“Overall risks are rising for inflation in India and one should not brush it aside as supply-side inflation. There may be an element of demand-side pressure also in it,” said Ms Ramya Suryanarayanan, an economist at DBS, Singapore. “I think the central bank is going to take note of that in next week’s policy meeting,” she said.
PMCA, while forecasting six per cent inflation by the end of March, said there was no need to change the current easy monetary stance unless inflationary pressures rose. “The stance of monetary policy will have to change from its highly accommodative position,” PMEAC chairman Mr. Rangarajan, said, while releasing the economic outlook report for 2009-10. “But that has to wait and that will depend on the growth performance of the economy and also inflationary pressures.”