Food inflation at 19.95%, RBI may hike rates

Food inflation touched more than a decade's high of 19.95 per cent as of December 5, driven by costlier vegetables, pulses, milk, wheat and rice, even as economists said they expected Reserve Bank to hike rates to tame price rise.

On an annual basis, potato prices more than doubled at 136 per cent and pulses became costlier by over 40 per cent, while onion prices rose 15.4 per cent.

Other food items that became dearer include wheat 14 per cent), milk (13.6 per cent), rice 12.7 per cent) and fruits (11 per cent). Food price inflation was triggered by a short supply of essentials owing to lower farm production following drought and floods in different parts of the country during the year.

The comprehensive wholesale price inflation, which includes manufactured products in addition to food and fuel items, soared to 4.78 per cent in November from 1.34 per cent in October.

"By the end of March 2010, it (inflation) could be close to seven per cent," Prime Minister's Economic Advisory Council chairman C Rangarajan had said earlier this week.

"We need to watch for behaviour of prices in December...possibly some action will be taken (by the RBI), which can have a moderating effect (on inflation)," said Rangarajan, a former Reserve Bank governor.

The RBI, which keeps a close watch on inflation and growth, is slated to come out with third quarterly review of monetary policy on January 29, 2010.

RBI had earlier projected inflation towards the year-end at 5 per cent, but later raised it to 6.5 per cent. Finance Minister Pranab Mukherjee too has said rising inflation was a matter of concern. "There is inflationary pressure, particularly in the food items. Even the wholesale prices have gone up substantially, about 19 per cent inflation (food)."

Food inflation in the last week of November stood at 19.05 per cent. On a weekly basis, the spike in prices was significant with urad and spices rising by 3 per cent while milk rose by two per cent.

At the same time, maize, barley, pork, masur and wheat was costlier by one per cent each. However, the prices of poultry chicken declined by 10 per cent and tea by 2 per cent.

Among the non-food articles, raw jute turned expensive by 11 per cent and mustard seed by 4 per cent. The fuel index declined during the week due to lower prices of aviation turbine fuel.