Drought in US, Eurasia to put pressure on food prices: RBI

KOLKATA: Reserve Bank of India said the prevailing drought in the parts of US, Eurasia and Australia may add to price pressures on food in the global markets.

The banking regulator has expressed concerns over considerable upside pressure on prices of pulses and edible oil.

"So while inflation risks in 2012-13 are on the upside, there is a need to distinguish between temporary and permanent supply shocks,"" RBI said on Thursday. .

"Structural shocks evident in inflation emanating from protein food, oil and some commodities require appropriate short and medium-term responses from the supply side," it said in its annual report for 2011-12.

RBI however said that inflation control remains the cornerstone of monetary policy as upside risk to inflation remain.

"This is largely due to unsatisfactory monsoon, large upward revision in minimum support prices on back of cost escalation and exchange rate depreciation between April and June.

Headline inflation averaged 7.3% during April-July 2012, lower than the 8.9% average for 2011-12. After dropping moderately in December 2011, headline inflation has neither risen nor fallen further in a perceptible manner.

In the first quarter review of monetary policy on July 31, 2012, RBI revised its baseline projection for headline inflation in March 2013 upwards to 7% from 6.5% factoring in the upside risks to inflation.