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Food inflation declines, govt concerned over cartelisation

delhi Updated: Mar 03, 2011 17:25 IST
food inflation

Decline in vegetable and cereals prices pulled down food inflation by more than one percentage point to 10.39 per cent for week ended February 19 over the previous week, as a top government functionary called for steps to prevent cartelisation by traders.

Food inflation stood at 11.49 per cent in the previous reporting week and 21.62 per cent in the corresponding period a year ago.

While a government data released today showed decline in prices of onions, potatoes and pulses, rates of fruit, milk and vegetables as a group continued to remain high.

Prices of potatoes declined by 12.66 per cent year-on-year, while pulses fell by 5.02 per cent during the period. Onions and wheat fell by 3.64 per cent and 2.06 per cent respectively.

The items that became dearer during the week ended February 19 vis-a-vis the corresponding year-ago period were fruits (16.34 per cent), egg, meat and fish (14.5 per cent), vegetables (14.29 per cent) and milk (11.07 per cent).

"The current inflation in food is unacceptably high. We have to work towards bringing this down," Chief Economic Advisor Kaushik Basu said.

Basu stressed on using the provisions of the competition law to prevent cartelisation by traders to jack up prices of essential food items.

"There is a need to invoke anti-competition law," he said while calling for measures against cartelisation to bring down the prices.

The competition watchdog CCI is already probing the role of traders' cartel in the sudden spike in onion prices in December last year.

Experts said though declining prices of certain food items will have a favourable impact on headline inflation in February, yet fuel prices will be something that needs to be watched.

"Inflation, not just food inflation, is an immediate challenge the country is facing... We have to see how fuel prices become volatile and how it impacts our import bill," ICICI Bank Managing Director Chanda Kochchar said.

Inflation declined marginally to 8.23 per cent in January from 8.43 per cent in the previous month, as prices of certain commodities like wheat, pulses and sugar eased.

Commenting on the food inflation figures released today, Crisil's chief economist D K Joshi, said "that was expected. This is an indication of a downward slide in inflation. We could soon see it in single digits."

Experts also said that since inflation is still high, the Reserve Bank may not change its policy stance and continue with monetary tightening.

"There has been a steep offset in food inflation from the rise in December and January, but overall headline inflation is a cause of concern and so is prices of fuel...

"RBI policy of tightening will continue and it may raise rates by up to 25 basis points in the mid-quarter policy review on March 17," Yes Bank chief economist Shubhada Rao said.

In its last policy review unveiled in January, the RBI raised the short-term lending (repo) rate to 6.5 per cent while the borrowing (reverse repo) rate was upped to 5.5 per cent.

It also extended the additional liquidity support facility to banks till April 8, 2011, while retaining the Cash Reserve Ratio (CRR)-- a portion of deposits that banks are required to maintain in cash with the RBI-- at 6 per cent.

The initiatives (hike in rates) were aimed at checking price rise while retaining the growth momentum, RBI said while raising the year-end inflation projection to 7 per cent.

The central bank in 2010 raised the key policy rates six times to contain inflation which shot up to 8.43 per cent in December on high prices of food items, from 7.48 per cent in November.