Monday, November 29, 1999

Food inflation eases to 16.1 pc

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Food inflation stood at 16.12 per cent for the week ending June 5 — down marginally by 62 basis points as opposed to the previous week when it stood at 16.74 per cent. Food price inflation was at 5.91 per cent during the same time last year. Even though food inflation figures might indicate some signs of easing, prices of essential commodities such as vegetables, fruits, milk, sugar continue to remain at elevated levels, making a strong case for the Reserve Bank to hike key interest rates to lower demand.Economists expect RBI to raise key interest rates — reverse repo and repo — by 50 basis points each in two rounds. "The structural demand for food has grown so much in food infaltion that it triggers the need for RBI to raise key interest rates. I expect the central bank to raise reverse repo and repo by 50 basis points each. The first round of hike of 25 basis points might be some time in June, before the policy, and another round of 25 bps hike on the policy review on July 27," said Rupa Rege-Nitsure, chief economist, Bank of Baroda.Finance minister Pranab Mukherjee, earlier in the week, had expressed the hope that food prices would decline by mid-July in view of the likelihood of a good monsoon. Monsoon accounts for 80 per cent of the annual rains the country receives. Nearly 60 per cent of area under cultivation is rain fed."Food inflation will remain volatile unless there is clarity on food production which is largely dependent on monsoon. This week it eased, next week it may spike," HDFC chief economist Abheek Barua. Food inflation has been hovering above 16 per cent since the start of the year. Prices of edibles had started rising last year and peaked to over 20 per cent in December 2009. Last year, food output was hit by poor monsoon. "It (food inflation) all hinges on monsoons. If there is a normal monsoon, second half will see a substantial reduction in food inflation. We see overall inflation easing to 6.5 per cent by March," Crisil chief economist D K Joshi said.

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