Food inflation falls to single digit, but prices still pinch

Food inflation has fallen the sharpest in one and a half years, maintaining a declining trend for the seventh straight week, but consumers said they still felt the pinch of high prices.

Food inflation has fallen the sharpest in one and a half years, maintaining a declining trend for the seventh straight week, but consumers said they still felt the pinch of high prices.

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The food price index -- which measures wholesale prices of staples, lentils and vegetables -- rose an annualised 8.6% on November 20, in comparison to the previous week’s rise of 10.15%.

This is the first time food inflation figures have dropped to single digits since May last year.

The food price line is finally beginning to behave according to the “scripted path”, i.e. the way government economists want it to.

Policymakers seek to control prices in various ways, such as by hiking bank rates or raising the amount of cash banks mandatorily need to park with the Reserve Bank.

Chief economic adviser Kaushik Basu had said he expected food prices to dip below 9%, yet this is way higher than what most people would be comfortable with.

A good monsoon and sufficient summer output are the main reasons for easing prices.

The taming of food inflation will give a fillip to the Manmohan Singh government -- under fire over corruption scandals. Yet, inflation remains the UPA government’s No. 1 worry. “I still feel food articles are very expensive,” Deepti Singh, a government accountant, said.

Mistakenly though, consumers, like Singh, believe food prices must be higher than the 8.6% that the government reported on Thursday.

The reason for this is that food prices have undergone a “structural shift”: high overall growth has pushed up incomes and, with it, demand for protein-rich food items, according to RBI deputy governor Subir Gokarn. Economists call this the “plate-to-plough” hypothesis.