Food prices on diesel fire

Inflation worries, because of which the RBI is unable to cut the key interest rates, are back. Zia Haq reports.

Inflation worries, because of which the RBI is unable to cut the key interest rates, are back.

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Analysts on Friday signalled a prolonged spell of high prices because the August inflation rate unexpectedly rose 7.5% from a year ago and Thursday’s hike in diesel prices had taken effect.

There were reports of protests from various parts of the country because of the hike in diesel prices and the cap on the number of discounted LPG cylinders a subscriber could get in a year.

Financial firms said they expected the higher diesel prices to contribute 65 basis points (one basis point is one-hundredth of 1%) to overall inflation.

“Therefore, we expect inflation to be above 8% by end-2012,” said Sonal Varma, an economist with financial group Nomura.

Major cargo operators have raised full-load truck rentals by 10-15%, according to the Indian Foundation of Transport Research and Training.

Higher transportation costs for food and manufactured items and weather-related disruptions in food supply will hit consumers hard.

The government data on Friday showed food prices mostly drove August inflation, after July's 6.9%. The food inflation rate rose 9.1% year on year from 8.7% in July, mostly because costly manufactured food items, cereals and pulses had offset the slight ease in fruit and vegetables prices.

According to farm minister Sharad Pawar, the output of pulses, coarse cereals and sugar will be lower than last year's because of a partial drought.