No respite from high food prices till 2012

Food prices are likely to remain high this year despite a better-than-expected monsoon, staying closer to the double-digit zone until mid-2012, economists say. Zia Haq reports. Inflation triggers

Food prices are likely to remain high this year despite a better-than-expected monsoon, staying closer to the double-digit zone until mid-2012, economists say.

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Analysts are trying to figure out the reasons behind sustained prices, amid what has been the longest spell of generalised inflation since the mid-90s.

Worryingly, many now view India's inflation as more deep-seated among all fast-growing economies, with the Wholesale Price Index (WPI) still pushing nearly 10%.

In August, consumer prices in China rose 6.2%, while in South Korea and Brazil, they went up 5.3% in 7.2% respectively from a year ago, according to World Bank data.

In India, prices may fall and rise, economists believe, but they won't drop back to "ideal levels" immediately.

The WPI for food articles rose 9.55% from a year earlier in the week ended Aug. 27, easing slightly from a 10.05% gain in the previous week, which was the highest in four months.

This spike was the result of June's diesel-price hike, which took a while to show up in food markets.

Unlike diesel, however, petrol prices hikes have contributed directly to inflation because it is accounted for in the WPI basket.

While higher demand has fanned prices of manufactured goods, food prices have gone up on the back of both higher demand and cost of production, NR Bhanumurthy of the National Institute for Public Finance and Policy said.

Higher incomes have caused demand to shift from staples to protein-rich diets, fruits and vegetables.

This has offset gains in higher cereal output from good monsoons.

"We expect high dependence on costly imported edible oils to continue," said Mr KRavichandran of ratings agency ICRA. Given the high reliance on imports, domestic edible oil prices have largely been pegged to international edible oil prices.

The Reserve Bank of India executive director Deepak Mohanty says there have been four inflationary phases so far: October 2009-March 2010; April-July 2010; August-November 2010; and December 2010 onwards.

With each phase, inflation has evolved, becoming more complex and mutating like a gene.

Many blame a national rural jobs plan for pushing up costs of farm labour, while a countrywide school meal programme - the largest food-based welfare scheme in the world - has additionally strained grain supplies.