Food inflation falls to 12.92pc on high base effect

New Delhi, July 1 (PTI) Food inflation in India declined
by a whopping 3.98 percentage points to 12.92 per cent for the
third week of June, as the rate of price rise in cereals and
vegetables showed a remarkable drop due to high base effect.

However, a number of essential items like pulses, fruits
and milk remained quite expensive for the week ended June 19.
The fall in food inflation would provide some breather to
the government struggling hard to control prices of essential
items which may again rise due to the cascading effect of the
diesel price hike last week, say analysts.
The fall in food inflation was largely because of high
base effect, which means that inflation was so high at this
point of time last year that the rate of price rise now looks
comparatively lower.
"The significant fall in food inflation is due to the
(high) base effect," Planning Commission principal advisor
Pronab Sen, who retired as the Chief Statistician yesterday,
said. Otherwise, most food items remained expensive, except
for potatoes, onions, wheat and rice.
Because of the high base effect, cereal inflation came
down to 5.36 per cent against 13.42 per cent a year ago,
vegetables fell 1.17 per cent against 25.19 per cent. Within
vegetables, potatoes turned cheaper by 39.61 per cent, while
onion prices fell by 7.36 per cent.
Among cereals, rice inflation was 6.44 per cent against
17.22 per cent a year ago, and wheat stood at 4.49 per cent
against 6.40 per cent.
However, many commodities such as milk, fruits and pulses
turned expensive during the week under review. Pulses rose by
31.57 per cent year-on-year despite some moderation on a
weekly basis.
The latest data do not capture hike in prices of fuels,
announced on June 25 and will be partly covered by the figures
to be released next week. As such, prices of fuel items
remained stagnant on a weekly basis.
In fact, the cascading effect of the diesel price hike
will also push up food inflation. And economists do not expect
food inflation to come to single-digit before September.
"Fuel inflation will go up, hiking the freight cost which
in turn will put upward pressure on prices. Food inflation
will come down to a low single-digit level only in the second
half of the fiscal," Crisil chief economist Dharmakriti Joshi
told PTI.
The government had last Friday hiked petrol prices by Rs
3.5 a litre while deregulating it. The price of diesel was
also raised by Rs 2 a litre, while LPG went up by Rs 35 a
cylinder and kerosene by Rs 3 a litre.

Headline inflation, however, will remain in double-digits
because of its spread to manufactured items and the recent
hikes in fuel prices. Overall inflation stood at 10.16 per
cent in May.
"Overall inflation is likely to hover in double-digits
for some more time on account of the fuel price hike," Yes
Bank chief economist Shubhada Rao told PTI. She expects the
Reserve Bank's forthcoming monetary policy to focus on
containing inflationary pressures.
"Policy focus will remain on containing inflation. The
Reserve Bank has to lean over demand pull inflation and it
will have to constantly monitor demand," Rao added.
The apex bank is widely expected to raise short-term
borrowing and lending (reverse repo and repo) rates at its
first quarter monetary policy on July 27.
Even the expected fall in food inflation from September
also depends on the monsoon. "If the monsoon comes out to be
good, there will be downward pressure on prices," Sen said.
Significantly, monsoon has been 16 per cent below normal in
June. PTI PPB
KAB