Onion, fuel bite: food inflation hits a worrying 14.4%

The red signal is clear on the price front. India’s food inflation in mid-December accelerated to a 10-week high in data released on Thursday, hit by higher prices of vegetables such as onions and tomatoes, besides fuel. That is a matter of worry for the government and consumers alike, with clear fears that overall benchmark inflation could exceed its tolerable limits of between 5.5% and 6% by March-end.

An index measuring wholesale prices of agricultural products including staples, lentils and vegetables compiled by the commerce ministry rose a whopping 14.44%, while the fuel price index climbed 11.63% in the year to December 18.

Food inflation in the previous week (December 11) had risen 12.13% from a year earlier. The index gained 9.46% the previous week. Food accounts for 14.3% in the wholesale price index, the most widely watched price barometer, while fuel has a weight of 14.9%.

“This is worrying. We thought that it (food inflation) is because of the base effect but it is not merely the base effect. There has been real increase in the prices of certain food items,” finance minister Pranab Mukherjee said.

High inflation has prompted the Reserve Bank of India to raise key lending rates — a standard tool to suppress demand, and thereby cool prices — at least six times since March last.

The RBI has left rates unchanged this month but investors said they expect another raise in key banking rates. Yet, such monetary measures have failed to bring down inflation to acceptable limits. The RBI has said it expects WPI inflation to ease to 5.5% by March 2011.

Thursday’s elevated food inflation figures reflect the over 300% rise in onion prices in mid-December due to a supply crunch. Vegetable prices increased by 29.26%, while fruit prices gained by 21.97%, the latest price data show. Milk prices grew 17.75%, while egg, meat and fish prices rose by 20.34%.


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