Food Inflation Dips to Single Digit at 8.6%

New Delhi
Food Inflation Dips to Single Digit at 8.6%
After staying put stubbornly at high levels for quite some time, food inflation finally entered single-digit after four months, sliding to 18-month low of 8.60 per cent for the week ended November 20 as prices fell on kharif crop arrivals in the market.

It was at this low way back in May 2009.

Food inflation, which has declined 7 weeks in a row, was at 10.15 per cent for the week ended November 13. It had recorded single-digit level for the week ended July 24, when it had fallen to 9.53 per cent.

However, on annual basis, items like onions, fruits and milk became costlier.

Overall, the slide will help the Reserve Bank breath easy while formulating monetary policy, as the economy too is on a high growth path. GDP showed an impressive 8.9 per cent growth in the first half of the current fiscal.

"Decrease in food inflation is good... I hope it will come down further," Finance Minister Pranab Mukherjee told reporters here.

Experts termed the fall in food inflation as beyond expectations and said that if sustained, the low rate could help bring down the overall inflation to government projection of 5.5 per cent by March end

"The overall inflation will remain the same as what I think we had said and what the RBI has said... Which is about 5.5 per cent by March 2011... Food inflation is definitely on its was to come down," Finance Secretary Ashok Chawla said.

Overall inflation, which factors in primary articles, fuels and manufactured products, was 8.58 per cent in October.

"We believe that food inflation will remain low in the near future and we do not expect it to again breach the double-digit this fiscal," said Crisil Chief Economist D K Joshi.

"As for RBI, the fall in the food inflation should allow it to maintain status quo. However, there are other factors also in play," he said.

On annual basis, for the week ended November 20, prices of pulses fell 10 per cent, while vegetables became cheaper by 3 per cent on account of sharp dip in potato prices that reduced by as much as 42.99 per cent.

Wheat prices also declined by 3.16 per cent.

However, food items like egg, meat and fish rose by about 15.58 per cent.

In vegetables, onion was expensive by 16.86 per cent on annual basis. Rice also became expensive by 1.84 per cent.

Fruits and milk became costlier by 19.27 per cent and 17.76 per cent, respectively, on year-on-year basis.

The fall in food inflation is in line with Chief Economic Advisor Kaushik Basu's projection earlier this week that the rate of increase in food prices would fall to single digit and even go beyond 9 per cent for the week ended November 20.

"Some downward trend was expected in the food inflation but the fall is even more sharp than we expected. Food inflation has been stubborn for quite some time," Crisil's Joshi said.

Joshi's view was seconded by other economists also.

"It was in line, but the final rate is lower than what we had predicted. Prices of vegetables and cereals generally fall after the monsoon and this has been somewhat reflected in the figures," Axis Bank Senior Vice President Saugata Bhattacharya said.

Asked if inflation will continue in single digit for rest of the fiscal, Bhattacharya said: "Probably...Very likely it will hold (in single digit) unless there is some disruption."

He added that the decline in food inflation will provide comfort for the RBI.

The fall in the food inflation rate comes barely a couple of days after the impressive GDP growth of 8.9 per cent registered by economy during the July-September quarter. The economic growth rate for the first quarter was also revised to 8.9 per cent from 8.8 per cent.

This also put the overall growth rate during the first half of the fiscal at 8.9 per cent.
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