Food inflation stays sticky, gives RBI much to chew on

Food prices are ripping apart household budgets. Even for the Reserve Bank of India (RBI), the level remains way beyond its comfort zone. The situation turned a bit grimmer on Thursday when government data showed that the food price index climbed 9.13 percent and the fuel price index jumped 12.84 percent in the year to June 11. In the previous week, annual food and fuel inflation stood at 8.96 percent and 12.84 percent, respectively.

[caption id=“attachment_30183” align=“alignleft” width=“380” caption=“The central regulator has signalled more increases to come even as growth in Asia’s third-largest economy is slowing down. Krishnendu Halder/Reuters”]  [/caption]

On Thursday, deputy governor Subir Gokarn clearly let out RBI’s uneasiness when he said food inflation remains uncomfortably high. The primary articles price index was up 12.62 percent, compared with an annual rise of 12.86 percent a week earlier.

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Attributing the latest jump in food inflation primarily to rising prices of protein-based items, finance minister Pranab Mukherjee on Thursday said the high inflationary regime was not acceptable and efforts would be made to bring it down. “… We are in region of high inflationary regime, which is not acceptable. It will have to be brought down,” Mukherjee told reporters in New Delhi while commenting on food inflation.

On Wednesday, he had tried to allay concerns over the forecast of ‘below normal’ monsoon rains during the current season and said the projections are only a shade below the annual average. “Let us wait for some more time… They (IMD) are saying it would be around 95 percent and normal average is 98 percent,” he had said.

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The RBI has raised key interest rate last week by 25 basis points for the 10th time in 15 months to combat sticky inflation, which is currently hovering above 9 percent. The central regulator has signalled more increases to come even as growth in Asia’s third-largest economy is slowing down.

The latest surge in food inflation numbers makes RBI’s recent claim on prices stand on its head. Headline inflation would be mostly driven by commodity prices in next few months and the rate of price rise in food items would moderate, the regulator had said.