Food inflation is rising through roof, becoming Narendra Modi government's first big challenge

The first inflation figures released after the formation of the new government will for sure send jitters across economic ministries as it comes as a contrast from the claims finance secretary Arvind Mayaram made just two days ago, that inflation would come down.

May Wholesale Price Index has touched a five-month high at 6.01% compared with 5.3% last month. High Food prices, fuel and manufactured product prices have contributed to the rise in inflation.

Food inflation is also rising through the roof. Food inflation was at 9.50% compared with 8.64% in the last month. As per the commerce ministry, the food items that have become costlier are chicken, fish, coffee, and fruits and vegetables. Fuel and power group has gone up at 10.53% against 8.93%.

Just two days back, Mayaram had said price situation would ease further with the measures that the government is taking. Commodity futures market is one of the options that the government is actively considering. PMO has already expressed that inflation should be the top priority for the finance ministry.

"Inflation remains a key impeding factor to the overall growth prospects of the economy. With food and fuel prices being the key driving factors, upside risks to inflation continues. The sub-par monsoon outlook for this year could put pressure on food prices going ahead," said Sidharth Birla, president, FICCI.

According to CII, the government should consider a multi-pronged approach which includes implementation of model APMC Act, developing advanced supply chains and rationalising input subsidies, if it were to address the problem of rising food inflation. "The government needs to also consider effecting moderation in MSP, right-sizing buffer stock, effective management of non-cereal food items especially protein based, improving agri productivity and focus on crop diversification, augmenting investment in agri-infrastructure and encourage FDI in retail," said Chandrajit Banerjee, director general, CII.

On Monday, the benchmark market indices continued to be weak with both Nifty and Sensex closing in the red as the WPI figure exceeded the estimate of 5.3%, triggering a decline. However, the markets recovered in the second half to close slightly below the previous close. Rupee opened at 59.82, and touched intra-day low of 60.22.

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