Food inflation rises to 16.74%, may prompt RBI action

Food inflation rose for the second consecutive week, pushed by higher prices of fruits, pulses and milk to 16.74%, prompting speculation that the Reserve Bank may tighten money supply at its policy meet next month.

Food prices increased by 0.19 percentage point for the week ended May 29 from 16.55% in the previous week.

Prices of pulses shot up by 31%, that of milk by 21.1% and fruits by 18.7%.

Consumer staples, such as rice and wheat, turned costlier by 7% and 3% respectively.

However, prices of potatoes and onions eased by 30.87% and 12.27% respectively.

The RBI, according to analysts, may take steps to control money supply in a bid to cool inflation, which has remained at an elevated level despite moderation from 20% in December.

The central bank is scheduled to announce its first quarter review of monetary policy on July 27.

The RBI may tighten monetary policy in the quarterly review next month, said Crisil chief economist DK Joshi.

"Food inflation would remain range-bound until next harvest season as there has been no sustained decline in food items. Once monsoon arrives, cereal prices may see a decline. So, food inflation would ease in the second half of the fiscal," he said.

On week-on-week basis, prices of beef rose by 8%, that of sea water fish by 3 per cent and arhar, moong and fruits and vegetables by one per cent each.

However, bajra prices fell by a percent.

Earlier this week, Planning Commission deputy chairman Montek Singh Ahluwalia had said that inflation was likely to fall to 5-6% by the end of the year.

"Inflation is too high to be comfortable... it is now decelerating... I am sure that by the end of this year, it will come down to 5-6%," Ahluwalia had said.

In April, the wholesale price-based inflation stood at 9.59%, slightly lower than the March number. The RBI has pegged the wholesale price-based inflation at 5.5% in the current fiscal.