Food inflation dips to 2-Yr low of 7.58%

NEW DELHI Food prices rose at their slowest pace in more than two years in the latest reporting week, bringing some cheer to policymakers hoping for a continued trend of moderation in inflation. Food inflation fell to a 27-month low of 7.58% for the week ended July 9, down from 8.31% in the previous week. "If this declining trend continues, I do hope it will have a moderating influence on the price front," said Finance Minister Pranab Mukherjee . Overall inflation stood at 9.44% in June. 

The price index for food articles remained unchanged, suggesting no pressure on prices during the week. Economists say food inflation is likely to remain in the range of 7-8% in the short term. Mukherjee, however, sounded a note of caution, saying that overseas developments still posed risks. "The trend is encouraging so far as the domestic sector is concerned. But we do not have total control over international issues, international commodity prices and fuel prices, and external inflationary pressures could have some adverse impact on the domestic front." National Institute of Public Finance and Policy economist NR Bhanumurthy, too, said though "double digit inflation has been out for sometime now, both upside and downside risks remain". 

The impact of the recent oil price hike has not been fully absorbed and it is likely that food inflation may rise in the short term. However, increased supply and record grain production would keep inflation in check. Besides, the monsoon has been up to the mark till July 20 and normal rains are expected for the rest of the season. This augurs well for food supplies, especially price-sensitive daily items such as fruit and vegetables. Current stocks of wheat, rice and pulses, too, are comfortable. 

"August and September are good months for fruit and vegetables, which depend on the distribution of rainfall. Inflation in these items is likely to moderate," said PK Joshi, senior program manager, IFPRI India. The Reserve Bank of India is widely expected to lift rates again in its quarterly review of the monetary policy due on July 26. "The RBI is likely to persist with monetary tightening at present and hike the repo rate by 25 basis points in the upcoming policy review," said Aditi Nayar, economist with ICRA .