Food inflation hits 12.21%. Here's why it will stay high

Food inflation is showing no sign of slowing down, going by the weekly data released on Thursday. For the week ended 22 October, food articles inflation surged 12.21 percent on an annual basis, up from 11. 43 percent a week ago.

Food articles account for a 14.34 percent weight in the wholesale price index (WPI). In terms of components, vegetables became 28.89 per cent costlier on a year-on-year basis. Pulses grew costlier by 11.65 per cent, fruits by 11.63 per cent and milk by 11.73 per cent. Eggs, meat and fish also became 13.36 per cent more expensive on an annual basis, while cereal prices were up 4.13 per cent.

 Food inflation hits 12.21%. Heres why it will stay high

For a start, it's clear that inflation is nowhere close to being tamed. Reuters

Other components of the WPI also remained at fairly high levels. Primary articles, which account for 20 percent of the WPI, showed a 12.08 percent increase from 11.75 percent one week ago, whilefuel and power, which account for nearly 15 percent of the WPI, was marginally lower at 14.5 percent from 14.7 percent in the same period.

So, what do the figures tell us?

For a start, it's clear that inflation is nowhere close to being tamed, despite 13 rate hikes by the Reserve Bank of India since March 2010.

Commenting on the latest food inflation numbers, Finance Minister Pranab Mukherjee said the rise in rate of price rise was a matter of "grave concern", but attributed this to the festive season, which led to an increase in demand.

"Inflation is still a matter of grave concern. This is also the affect of the festive season. November onward, thereal trend for the remaining four months of the fiscal will be available," he told reporters.

In fact, the 'real' trend is likely to remain high.Petrol prices are set to be hiked, and diesel and LPG (cooking fuel) prices might soon follow. Diesel price hikes have a more widespread impact on the economy, as it the fuel primarily used by industry and the transport industry. When the cost of transporting food increases, the prices of food rise as well.

Add to that an increase in freight rates. From 15 October, railway freight rates have gone up by 15 percent as the railways imposed a busy season charge on all cargoes. That will feed through to overall inflation in the coming weeks.

More significantly, the UPA government has announced a sharp 15-38 percent jump in minimum support prices (MSP) for rabi wheat and other commodities.While these MSPs are for the rabi crop that will come in only next year, what is clear is the potential for inflation that the government is beginning to build up for the future - when the RBI has promised a drop in the WPI to 7 percent by March 2012, a Firstpost article pointed out.

So, really, there's little reason to believe food prices are going to come down any time soon.

(With inputs from agencies)

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Updated Date: Dec 20, 2014 06:57:16 IST