Thursday, April 28, 2011

Food inflation inches up to 8.76 %

Food inflation inched up a tad to 8.76 per cent for the week ended April 16 from 8.74 per cent in the previous week which, analysts feel, has sealed the prospects of yet another hike in key short-term lending and borrowing rates by the Reserve Bank of India (RBI) in its annual credit and monetary policy review next week on May 3.

With rising inflationary pressures persisting, the customary consultations that the RBI Governor has with the Finance Ministry to review the economic scenario prior to announcing the credit policy assumes greater significance this time round in view of a discernible slowdown in growth in the wake of high headline and food inflation.

Commenting on the wholesale price index (WPI) inflation data on primary articles which call for a delicate calibration of monetary policy measures, Finance Minister Pranab Mukherjee maintained that the latest figures on food inflation were in line with the upward trend witnessed earlier.

“We will talk with the Governor of RBI [D. Subbarao] before he announces the monetary policy. We will have a discussion. I think he is coming tomorrow [Friday]... as far as April 16 [WPI data] is concerned, it has been on the same lines. There has been some marginal variation. More or less, the trend that was noticed on April 9... the same trend is being maintained,” Mr. Mukherjee said.

Economic analysts, however, point out that apart from food prices which are expected to decline in the coming weeks, it is the rising commodity prices, including crude oil, which is exerting additional pressure on headline inflation.

Hinting at the need for some strong measures to get a hold on the price situation, KASSA Director Siddharth Shankar said: “Inflation numbers released today are indicative that the inflation is not getting under control and somehow simple policy initiatives will be of no help”.

Even as a hike in short-term lending (repo) and borrowing (reverse repo) rates by at least 25 basis points is on the cards, the industry has warned that any harsh measure to suck out liquidity and render funds unduly expensive would further impact industrial and overall growth which has already shown a decelerating trend in recent months. However, this is despite the fact that the RBI has already raised its key policy rates eight times since March last year in its bid to suck out excess liquidity and thereby rein in inflation but the steps have not yielded results at the level desired.


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