Food inflation eases to 18.65%

NEW DELHI: After seven weeks of steady rise, annual inflation in food articles eased marginally to 18.65% for the week ended December 12, from 19.95% for the previous week, following a drop in prices of cereals and fruit and vegetables as more supplies reached the market.

Prices of food articles declined 1.2% during the course of the week. The government’s decision to release wheat in the open market is also expected to have an impact on the prices soon.

Chetan Ahya of Morgan Stanley pointed out in a research note that food inflation will moderate to about 15% over the next three months. “Strong growth in winter crop output, which is due for harvesting in March-April, should also help to some extent,” Ahya said.

Further, strengthening in rupee on account of strong capital inflows into the second-fastest growing major economy in the world is also expected to keep a check on inflation.

“Economics literature shows that a 10% appreciation in rupee will help in cutting wholesale price inflation any where between 1% to 3%,” said Indranil Pan, chief economist at Kotak Mahindra Bank.

Indian rupee has appreciated by more than 4.3% in this fiscal, the third highest appreciation among Asian currencies according to data compiled by Bloomberg.

According to Mr Pan, although the central bank may not use rupee appreciation as a way to tame inflation, it will have a softening effect on inflation in the short term.

The annual wholesale price inflation rose to 4.78% in November from 1.34% in the month before.

Finance minister Pranab Mukherjee and Planning Commission deputy chairman Montek Singh were among top policymakers who expressed their concern on rising food price inflation on Wednesday.

The index for non-food articles rose 2.4% during the week. This group includes primary commodities that go into manufacture of other products. The inflation in this category is now 7.97%, steadily going up over the last couple of months. The increase in prices of these commodities could suggest a stronger demand from the manufacturing sector.