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NEW DELHI -- Food inflation eased to its lowest since February 2009 on the back of a softening in prices of pulses, milk, eggs, meat and fish, but analysts say risks still persist that will maintain the pressure on prices. Data released by the commerce and industry ministry on Thursday showed food inflation stood at 7.33% in the week to July 16, easing from the previous week's reading of 7.58%. Food inflation, which shot up to double digits last December, has been softening as supplies have picked up. Pulses prices declined 8% in the week to July 16 from a year ago but prices of onions, fruit and vegetables rose.

Finance minister Pranab Mukherjee did not read too much into the easing of food inflation in mid-July, and said inflationary pressures were still there in the economy.

"These weekly figures fluctuate mainly on the base effect. Therefore, they do not show any definitive trend," he told reporters. The Reserve Bank of India (RBI) has identified several risks to growth and inflation in the months ahead and has said there are risks to food inflation stemming from the monsoon performance, higher minimum support prices and inadequate supply response pertaining to protein-rich items. The RBI on Tuesday raised interest rates for the 11th time in nearly 15 months and said inflationary pressures in the economy were still strong. It also raised its March-end inflation forecast to 7% from its earlier estimate of 6%. "Inflationary pressures are clearly very strong, notwithstanding signs of moderation of economic activity.

Importantly, the softening of commodity prices over the past three months did not translate into a decline in either headline WPI inflation or non-food manufactured products inflation. If the softening reverses, commodity prices are likely to exert inflationary pressures for some time, making moderation in demand necessary to bring inflation down," the RBI said in its policy review. The index for food articles group rose by 0.8% to 193.3 from 191.7 for the previous week due to higher prices of fish-inland, fruits and vegetables and fish (2% each) and bajra, gram, condiments and spices, rice and tea (1% each). However, prices of jowar (4%), ragi and poultry chicken (2% each) and masur, arhar and egg (1% each) declined.

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Publication:Pakistan & Gulf Economist
Date:Aug 14, 2011
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