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Food inflation at 7-week low; fuel price reason of concern: FM

business Updated: Jul 07, 2011 16:57 IST

Cheaper pulses and vegetables brought down food inflation to a seven-week low of 7.61 % for the week ended June 25 though finance minister Pranab Mukherjee said inflationary pressure is likely to continue following the recent increase in rates of petroleum products.

While the inflation for non-food primary articles fell during the period under review, a rise was noticed in the fuel and power index on account of hike in prices of diesel, cooking gas and kerosene announced last month.

Food inflation, as measured by the Wholesale Price Index (WPI), stood at 7.78 % during the previous week. It was almost 20 % during the comparable period of June, 2010.

During the week under review, pulses became over 9 % cheaper year-on-year, while prices of vegetables and potatoes also went down by 8.74 % and 2.13 %, respectively.

"There is inflationary pressure in the system and these weekly variations (in food inflation numbers) are mainly because of base effect," Mukherjee said.

He further said the overall inflation in June could see some upward movement, from 9.06 % recorded in May. It would be mainly on account of the fuel price hike announced on June 24, he added.

The latest numbers on price rise of food items are the lowest since the week ended May 7, when food inflation stood at 7.47 %.

Meanwhile, inflation in overall primary articles stood at 11.56 % for the week ended June 25, down from 11.84 % in the previous week. Primary articles have a share of over 20 % in the WPI basket.

Inflation of non-food items stood at 17.69 %, down from 17.91 % in the previous week.

Prices of LPG went up by 14.58 % on an annual basis. The inflation index for LPG was 11.31 % during last few weeks.

On a weekly basis the index on fuel and power rose to 166.3 points from 160.2 points in the previous week. Overall fuel and power inflation stood at 12.67 %.

"This six points increase in mainly because of enhancement of prices of diesel, kerosene and LPG. That has its impact," Mukherjee said.

While experts said the softening of price rise is likely to continue as monsoon progresses, prices rise of fuel could affect the overall trend.

They also said that the fuel price hike may spill over into the food segment in the form of higher transportation costs for grains and other crops.

"The recent increase in the price of diesel may result in a further rise in vegetable prices in the coming weeks... The fuel index rose by 4 % relative to the previous week, reflecting the revision in prices of diesel, LPG and kerosene," ICRA economist Aditi Nayar said.

She said a high base of nearly 20 % food inflation in the corresponding period of last year has also contributed to the moderation.

According to Nayar, headline inflation will rise to around 9.7 % in June.

While pulses, vegetables and potatoes became cheaper on an annual basis during the period under review, other food items continued to be expensive.

Fruits became 22.75 % more expensive, while onions became dearer by 21.24 % year-on-year.

Egg, meat and fish were up 10.12 % and cereals by 4.26 %. Milk rose by 12.10 % on an annual basis.

"In the light of high food stock and improved supplies, food inflation has fallen... Good Monsoon rainfall should help bring this down further in the coming weeks," Deloitte, Haskins & Sells director Anis Chakravarty said.