Food inflation dips to 8-month low of 12.92%

New Delhi: Annual food inflation in India dropped sharply to 12.92%, an eight-month low, in the third week of June from 16.9% in the previous week on the back of a high base effect. But, with the week-on-week inflation figures showing marginal uptick of 0.3%, markets and economists expect the central bank to go for a sharp hike in the key policy rates on or before the quarterly monetary policy review that falls on July 28. The yield on government bonds across all maturities closed lower on expectation of hike in the key policy rates.

“The pace of rise in food prices is showing some signs of easing on the back of expectations of a good monsoon. However, if the prices do not drop from the current levels and core inflation eases, there is a possibility of classic wage price upward spiral scenario playing out,” country’s chief statistician Pronab Sen told FE.

On back of a high base effect, the annual inflation in potato prices showed a drop of 40% while price of onion fell by 7% in the week ended June 19. Cereals, vegetables and fruits showed single digit inflation while pulses showed a 31% annual increase in prices.

“Provided the monsoon is good, we are expecting the food price inflation to come down to 5%-6% by the December,” Plan panel member Abhijit sen had told FE in an earlier interview.” The prices of dairy products, which is showing no signs of easing so far, will also move down as a good monsoon brings down fodder costs,” Abhijit Sen had said. The price of milk showed an annual inflation of 15% in the week under consideration.

Although the Met department is projecting above-normal rains in the current year, according to the latest official data there was a 16% deficit in the monsoon rains in month of June. Last year, the worst monsoon rains in more than 30 years had pushed annual food price inflation to a high of 21%. Annual inflation for fuel items dropped to 12.9% from 13.18% in the previous week. But the annual inflation for fuel items will be showing a sharp spike in coming weeks as last week the government has hiked the prices of petrol, diesel, kerosene and cooking gas.