Food inflation eases to 16.81%

Food inflation fell to 16.81 per cent during the week ended January 9, even as prices of a host of essential items like pulses, potatoes and cereals continued to rule high, prompting the government to announce supply augmenting measures for the poor.

Although the rate of food price rise declined for the third week in a row, it still stood at an elevated level compared to last year's 11.59 per cent.

Food inflation stood at 17.28 per cent a week ago. Prices of potatoes rose by close to 50 per cent year-on-year while pulses became costlier by 47.90 per cent.

Cereal prices were up 14.18 per cent, with wheat rising nearly 15 per cent and rice 12.64 per cent.

To shield the poor from the price rise, the government has decided to give 10 kg rice and wheat more to poor families for this month and February at ration shops.

Milk prices soared by 13.95 per cent over last year and are expected to surge further on lower availability.

"We are facing insufficient availability of milk, especially in northern India," agricultural minister Sharad Pawar said on Wednesday.

Prime Minister Manmohan Singh will meet states over the issue of surging food prices on January 27.

Economists said rising food prices would force RBI to tighten money supply, but it would not lead to rise in lending rates as there is excess liquidity in the system.

"The RBI could withdraw excess liquidity from the system. It may not move the policy rates, but may raise CRR to signal that stern measures could be taken if the prices do not come down," said Suresh Tendulkar, former chairman of the Prime Minister's Economic Advisory Council.

The Reserve Bank of India is scheduled to come out with its monetary review by January 29. Rise in fruit prices was moderate at 3.73 per cent.

Onion prices rose by over 15 per cent while vegetable prices were up 7.95 per cent. Even though some economists see food inflation softening in the weeks ahead to soothe the overall inflation, chief statistician Pronab Sen expects wholesale price-based inflation to rise to nine per cent by March-end from over seven per cent in December.

"The easing (of food inflation), I expect to continue. There would be impact on other prices also and the general inflation level," Tendulkar said.

Inflation will touch nine per cent by this fiscal-end, Sen said. Among other categories, mineral prices fell by 5.18 per cent during the week ended January 9, LPG by 7.14 per cent and petrol by 2.18 per cent.