India’s food inflation rate galloped towards double digit levels — it was 9.90% for the week ended July 30 – driven by costlier protein-rich products, such as eggs, milk, meat and fish.
The overall inflation rate was 9.44% in June and will go up in July the data for which will be released next week.Experts warned that prices would surge further in the coming weeks as the knock-on effects of a hike in diesel prices cascade through the economy.
This has presented policy-makers with a severe dilemma: the series of fiscal and monetary measures to cure inflation has not cooled prices, but has affected growth in the broader economy.
Finance minister Pranab Mukherjee termed the high inflation rate as a matter of grave concern.
“If it is 9%, it is not acceptable. It (inflation) would have been ideal at 3.5% to 4% ...even if we can keep it at 5-6% (it will not be bad),” he told the Rajya Sabha on Thursday.
The Reserve Bank of India (RBI), which will present a mid-quarter policy review next month, has raised the repo rate —at which banks borrow from the RBI — by 11 times in the past 16 months to cool prices.
A higher repo raises banks’ borrowing costs which, in turn, raises the interest rates on home, auto and corporate loans.
On Thursday, India’s top two lenders SBI and ICICI Bank raised its lending rates by 0.50 percentage points.
In June, the government raised diesel, kerosene and cooking gas prices by R3 and R2 a litre respectively and R50 a cylinder — a move that is bound to have a domino effect on prices of most items, from transport to food.
Fuel, power and lighting carry a weight of 14.91% in the wholesale price index —India’s most followed inflation index.