Food Inflation returns to double digit at 10.60% for the week ended October 8, 2011

India’s weekly food inflation measured by Wholesale Price Index (WPI) after a gap of a month-and-a-half is back in double digits at 10.60% for the week ended October 8, 2011 as compared to 9.32% in the previous week on the back of costlier vegetables, fruits, milk and protein-based items.

According to the data released by the Ministry of Commerce and Industry, the index for ‘Food Articles’ group rose by 0.4% to 200.3 (Provisional) from 199.5  for the previous week due to higher prices of poultry chicken (4%), bajra (2%) and fish-inland, masur, fruits & vegetables, urad and condiments & spices (1% each).  However, the prices of jowar and ragi (2% each) and barley, maize, fish-marine and moong (1% each) declined.

However, the index for ‘Non-Food Articles’ group has declined by 0.4% to 179.8 (Provisional) from 180.5  for the previous week due to lower prices of soyabean (7%), raw silk (6%), copra and sunflower (4% each), castor seed and groundnut seed (3% each), coir fibre (2%) and rape & mustard seed (1%).  However, the prices of flowers (20 %) and gaur seed (1%) moved up.

Meanwhile, the index for Primary Articles groups which account for 20.12% of the WPI rose by 0.2% to 203.8 (Provisional) from 203.4 for the previous week. The annual rate of inflation, calculated on point to point basis for this group, stood at 11.18% (Provisional) for the week ended October 8, 2011 as compared to 10.60% for the previous week ended on October 1, 2011.

The index for Fuel and Power group which accounts for 14.91% of the WPI rose by 1% to 170.1 (Provisional) from 170.00 for the previous week due to higher prices of bitumen and furnace oil (1% each). The annual rate of inflation, calculated on point to point basis, stood at 15.17% (Provisional) for the week as compared to 15.10% in the previous week.

Food inflation rate which has rose to the highest level in almost six months in likely to exert further pressure on the government and the Reserve Bank to tackle the situation expeditiously. “Growth in Asia's third-largest economy will be slower than government projections”, Finance Minister Pranab Mukherjee said on Wednesday, highlighting how high inflation, rising interest rates and global financial turbulence threaten India's growth momentum. Mukherjee hinted that India may continue to tighten monetary policy, in contrast to most other major emerging economies, to keep stubbornly high inflation in check despite fears of a broader economic slowdown.

Thus with the hawkish language of finance minister coupled with the headline inflation hovering uncomfortably above 9% and food inflation entering into double digits for the week, RBI’s move of  hiking rate by another 25 bps in its upcoming monetary policy on October 25,2011 would not come as a surprise to the street. The RBI has uptill now already hiked interest rates by 12 times, by a total of 350 basis points, since March, 2010 in order to tame demand and curb inflation.