Aug. 5: Food inflation continued with its downwards slide, falling to 9.53 per cent for the week ending on July 24 as vegetables turned cheaper due to good rains.
Food inflation, which measures how prices are rising as compared to the same period last fiscal, had fallen to single digit for the first time this year in the previous week to 9.67 per cent. Last year in the same period food prices were high and therefore the rise on year-on year basis doesn’t appear too high.
The government is hoping that due to a good monsoon the food prices will remain in the comfortable zone in the coming days. The finance minister, Mr Pranab Mukherjee, said on Thursday that the food prices are coming down due to the measures taken by the government. Food inflation had gone as high as 20 percent last year. However, the overall inflation is still in double digits at 10.55 per cent in June.
The finance minister said that the RBI will not hesitate to taken monetary action to control inflation. “RBI is keeping a watch on the demand side and if it is found that demand side needs to be taken care of and if it is necessary and then adjustments will have to be made,” said Mr Mukherjee.
He said the apex bank is framing its monetary stance in coherence with the Centre’s fiscal policies. “RBI has assured that it does not want to frame monetary policy which is discordant with fiscal policy. That is why, it is making changes in doses,” added Mr Mukherjee. RBI in its monetary review last month had raised in the short-term borrowing (reverse repo) rate by 50 basis points and lending (repo) rate by 25 basis points.
The high inflation has now become a political issue. The opposition parties have been stalling the proceedings of Parliament over high prices. This had forced the government to hold special session on inflation in Parliament.
“I am still convinced that inflation is here to stay and with globalisation of the Indian economy if the food production is falling in other parts of the world the prices will continue to remain high. I think government will need to formulate some strategy so that we remain insulated if the food production falls in other parts of the world,” said Mr Siddharth Shankar, economist and director, KASSA.
He said that non-food inflation is on the rise which means that inflation is not coming under control and is spreading itself fast. “The more it spreads the more aggressive the RBI will need to get to make it fall within an acceptable range,” added Mr Shankar.