Slow pace of dip in food inflation causes concerns

NEW DELHI: Food inflation moderated further to 16.04% for the week ended April 24, but the slow pace of decline from over 20% in December last has raised concerns that it could shoot up on any adverse news. The stubbornness in food inflation is underscored by the uptick in prices of many food articles during the course of the week. A worried government on Friday said it will sell additional quantity of wheat and rice through ration shops at concessional rates.

The price index for food articles has, in fact, gone back up almost to the levels in December 2009 when year-on-year inflation had crossed 20%. This indicates that part of the decline in inflation in food articles could be due to the base effect. Food inflation had begun to rise around this time last year and measured against that rising base, inflation is appearing to be low even as there is not much of a decline in prices. However chief economic adviser Kaushik Basu expressed confidence that whole sale price index based inflation would decline in the next three months, “My expectation is inflation will be on a downward path, but fluctuating over the next three months, before a sharper downward decline. I expect it to be 6-7% within the next three months.

” The WPI inflation figures for April will be released next week. In March, India’s WPI inflation rose to 9.9% as compared to 9.89% in February. SBI chairman OP Bhatt in Singapore said inflation rate would slow down to between 5.5% and 6.5% by March 2011. Technically, inflation should come down, said Bhatt, citing strong economic growths, backed by improving performances by all economic sectors.

Analysts expect that a normal monsoon, as forecast by the India Meteorological Department, may help cool food prices. “Inflation at 16% is very high, any way one looks at the figures. There is some amount of stubbornness in prices, due to which the decline in food inflation is very slow. The better than expected rabi crop may have some dampening effect,” said Sunil Sinha, head of research and senior economist at Crisil.