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Food Inflation Moves Up Sharply North

MP Rana, Thursday 01st September 2011


After a lag of 5 months, country’s food inflation again touched the double digit mark, recorded at a level of 10.05% year on year, as on week ended August 20. Looking at the fact that RBI has already adopted upward revisions of key policy rates 11 times since March 2010, there are grim concerns over further rate hikes in the near future, even during the times of slackening growth.


WPI for farm products including wheat and rice jumped by 10.05 percent from the level seen last year. Sharp gains in food prices have made India stand on one of the highest spots among the major Asian economies in terms of inflation. This would ultimately mean a heavy increase in borrowing costs, much above the comfort level of businesses of the country during upcoming months.


The overall hike in food inflation rate has been largely driven by a spike in the prices of fruits, onions, vegetables and other protein based items where the prices of onions rose by a hefty 57.01% over and above the previous year level. In the light of all these factors, the repurchase rate is likely to be increased by .25% to a level of 8.25%. The current rate drive of rate hikes continuing since March 2010 is the most aggressive since the establishment of RBI in the year 1935.

With Contribution from Somil Gupta

 
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