Food is now costlier! Food inflation at 17.05%

Providing no respite to the common man, food inflation rose to 17.05 per cent for the week ended January 22, as Finance minister Pranab Mukherjee expressed "grave concern" and assured steps to moderate it.

Driven by higher prices of vegetable, fruits and eggs, food inflation increased for the second week in a row, soaring by 1.48 percentage points from 15.57 per cent in the previous week.

"Price rise always, particularly, the commodity price and food items are matter of grave concern" Mukherjee told reporters when asked to comment on the rising inflation.

Mukherjee said efforts are being made both from the demand and supply side to moderate it. Food inflation had stood at 20.56 per cent during the same period a year ago.

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Although the vegetable prices are likely to moderate in the coming weeks, protein-based food items like milk, fish and egg are expected to remain firm.

"Real stubborn components are the fibre items, milk, egg and fish. We need to improve production, storage facility and processing," Crisil's Principal Economist D K Joshi said.

Moreover, he added, the impact of political crisis in Egypt and other middle-east countries on global crude oil prices may cast a shadow on headline inflation, which shot up to 8.43 per cent in December from 7.48 per cent a month ago.

Inflation in 'Fuel and Power' segment showed an increase of 11.61 per cent year-on-year following an increase of petrol prices by Rs 2.50 per litre in January.

Among vegetables, onion prices on annual basis rose by 130.41 per cent in the third week of January, although they have moderated considerably in the recent days.

Vegetables as a whole became dearer by 77.05 per cent on an annual basis followed by fruits (15.47 per cent), egg, meat and fish (15.05 per cent), milk (11.41 per cent) and potato (6.22 per cent).

The uptick in latest food inflation figure is likely to put further pressure on the government to provide relief to the common man in the coming budget.

Both the government and the Reserve Bank have been grappling with high inflation and slowing industrial growth that dipped to the 18-month low of 2.7 per cent for November.

Experts feel the RBI, which has raised key policy interest for the seventh time since March 2010, may go in for yet another hike in its mid-quarter monetary policy review next month. The review is scheduled for March 16.

Deloitte's Principal Economist in India Shanto Ghosh said the government needed to take steps to remove supply bottlenecks and plug leakages in the distribution system to tame price rise on a sustained basis.

As regard the expectations in the short-run, he said, "I expect the rising trend to be reversed within the next few weeks."

According to the government's estimates, India loses agri products, fruits and vegetables to the tune of Rs 1 lakh crore annually due to want of adequate cold chains and back-end infrastructure.

Last evening Finance Minister Pranab Mukherjee had said that in large economies like India, periodic fluctuations in inflation "are not unusual".

In the remaining three months of the fiscal, he added, "there may be some fluctuations". The RBI has increased the year-end headline inflation forecast to 7 per cent from earlier estimate of 5.5 per cent.