Food inflation up to 8.76%; RBI likely to hike rates further

Food inflation went up to 8.76 per cent for the week ended 16th April, raising fears of another hike in the key policy rates by the Reserve Bank in its annual policy to be announced next week.Amid concerns of rising inflation, RBI Governor D Subbarao is expected to hold consultations with Finance Ministry officials before firming up proposals for the annual credit policy to be announced on 3^rd May.

 

"We will talk with RBI Governor before he announces the monetary policy. We will have a discussion," Finance Minister Pranab Mukherjee said.He, however, maintained that the latest food inflation numbers are in line with recent trends."As far as 16^th April is concerned it has been on the same lines. There has been some marginal variations. More or less the trend that was noticed on 9^th April.. the same trend in being maintained," Mukherjee said.

Experts, however, said the rising food prices, coming on top of increasing commodity prices, would force the RBI to go for another round of hike in key policy rates next month."The marginal increase in the weekly food inflation rate is statistically insignificant. Of larger relevance is the persistent level of headline inflation," Deloitte, Haskin & Sells director Anis Chakravarty said.

Food inflation went up marginally from 8.74 percent in the previous week. The latest number of 8.76 per cent is also the highest in three weeks, after a brief phase of downward trend in March.During the week under review, fruits became dearer by 28.43 per cent year-on-year, while egg, meat and fish prices went up by 12.14 per cent. Onions became expensive by 10.96 per cent.Headline inflation has been above 8 per cent since January 2010.

As per latest data, it stood at 8.98 per cent in March this year, which is above the government's projection of 8 per cent.RBI has already hiked its key policy rates eight times since March 2010 to suck in excess liquidity from the system and tame demand."Pace of food inflation has been easing. However, given the seasonality, there could be some transient pressure on perishable food items," Yes Bank chief economist Shubhada Rao said.

She, however, cautioned against the sustaining headline inflation. "As such we maintain our call on RBI rate hike (repo and reverse repo) by 25 basis points on 3^rd May and 50 basis point hike by December-end this year," Rao said.

Courtesy : DDN