Food inflation hits 6-month high of 11.43% for week ended Oct 15

India’s food inflation inched up to 11.43%, breaching the psychological barrier for the week ended October 15 from 10.60% in the previous week. The weekly food inflation measured by the Wholesale Price Index (WPI) is at 6-month high, sustaining the pressure on overall inflation and the Reserve Bank of India (RBI). The surge was mainly on the back of relentless rise in prices of vegetables, fruits, milk and protein-rich items.

According to the data released by the Ministry of Commerce and Industry, the index for ‘Food Articles’ group rose by 0.2% to 200.8 (Provisional) from 200.3 (Provisional) for the previous week due to higher prices of condiments and  spices (3%), gram, fish-marine and maize(2% each) and pork (1%).  However, the prices of poultry chicken, (5%), bajra(2%) and egg, ragi and urad (1% each) declined.
 
But the index for ‘Non-Food Articles’ group declined by 0.1% to 179.7 (Provisional) from 179.8  (Provisional) for the previous week due to lower prices of flowers (7%), gaur seed (6%), raw jute (3%), castor seed, groundnut seed and niger seed (2% each). However, the prices of gingelly seed (3%), raw silk, fodder, and soyabean (2%each) and raw cotton, raw rubber and copra (1% each) moved up.

On the other hand, the index for ‘Minerals’ group rose by 1.8% to 309.2 (Provisional) from 303.6 (Provisional) for the previous week due to higher prices of steatite (19%), barites (13%) and crude petroleum (6%). However, the prices of zinc concentrate (13%), sillimanite and copper ore (7%each) and manganese ore and iron ore (3% each) declined.

As a result the index for ‘Primary Articles’ groups which account for 20.12% of the WPI rose by 0.3% to 204.5 (Provisional) from 203.8 (Provisional) for the previous week. The annual rate of inflation, calculated on point to point basis, stood at 11.75% (Provisional) for the week ended October 15 as compared to 11.18% (Provisional) for the previous week. 

Meanwhile, the index for ‘Fuel and Power’ group, which account for 14.91%, remained unchanged at its previous week’s level of 170.1. The annual rate of inflation, calculated on point to point basis, stood at 14.70% (Provisional) for the week ended October 15 as compared to 15.17% for the previous week.

The stubbornly high food inflation is really a serious matter of concern for the government and policy makers. Experts from the industry are of the view that the food inflation is less likely to come below 10% in short term, as there is a mismatch between demand and supply.

However, because of the base effect, the food inflation is expected to decline as it has shot up around 20% in December 2010. If food inflation is not softening by the December 2011, then it may lead to a situation of stagflation that is high inflation and low growth. The rise in food inflation, which has a significant share in the overall price spiral, vindicates the rate hike and the policy stance taken by the RBI, which has increased its key policy rates for 13 times since March 2010. In its annual review, the apex bank had estimated headline inflation to remain high till December this year before tapering down to about 7% by the end of the fiscal year in March, 2012.