New Delhi: Food inflation shot up to nearly a year's high of 18.32 per cent on December 25, due to spurt in vegetables, onion and milk prices, increasing pressure on government and RBI to intervene.
While economists felt that the soaring food prices would exert pressure on RBI to revise policy interest rates, Home Minister P Chidambaram had raised doubts whether prices can be reined in.
The wholesale food inflation jumped by 3.88 percentage points from 14.44 per cent in the previous week ending December 18, 2010 taking government by surprise.
A huge increase of over 82 per cent in onion prices and 58.85 per cent in vegetables led to the overall increase in food inflation. The onion prices, which have started rising again after declining for a brief period, may go up again following a Pakistan ban on shipments through land route of Wagha border.
The other items that contributed to price rise were egg, meat and fish (up 20.83 per cent), fruits (19.99 per cent) and milk (19.59 per cent).
Finance Minister Pranab Mukherjee said though it was a weekly figure, the government was concerned over the price spurt. "These are weekly (figures). Let us wait for monthly figures. These are weekly variations, but is a matter of concern," he said.
Having raised the key interest rates for six times in 2010, the RBI is expected to again hike them in its next policy review on January 25 to cool down inflation.
However, Chidambaram, who was Finance Minister during UPA-I expressed doubts yesterday whether the government has adequate policy tools to tame rising food prices, which erode real family income.
"...Not sure whether we understand all the factors that contribute to price rise. Nor am I sure whether we have at our hand all the tools to control inflation," Chidambaram said yesterday, adding "there is no tax worse than inflation".
Talking to reporters, Chief Economic Advisor in the Finance Ministry, Kaushik Basu said the rise in food inflation was expected, but not to the extent of 18.32 per cent.
Given the inflationary pressure, the RBI may further raise the policy interest rates, prompting banks to increase the cost of borrowings, which may be a double whammy for the middle class paying monthly installments on different types of personal loans.
"RBI is expected to hike policy rates by 25 basis points", ICRA economist Aditi Nayar said.
Yes Bank chief economist Shubhada Rao too felt that the monetary policy would continue to remain tight on inflationary concerns.
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