The Telegraph
Tuesday , July 17 , 2012
Since 1st March, 1999
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Food price irritant in inflation comfort

New Delhi, July 16: Food prices hardened in June even as inflation eased marginally to 7.25 per cent during the month, prompting mixed views on whether the Reserve Bank of India will opt for a rate cut in its policy review later this month.

Food inflation increased to 10.81 per cent in June from 10.74 per cent in May amidst concerns over delayed monsoon. However, inflation, as measured by the wholesale price index (WPI), rose lower-than-expected from 9.51 per cent in June last year. In May, the inflation rate stood at 7.55 per cent.

“The fall in inflation will be a significant input for the RBI to take view on monetary policy,” said economic affairs secretary R. Gopalan.

However, Planning Commission deputy chairman Montek Singh Ahluwalia said the rate of price rise was “a matter of concern” and expressed hope that “we will be able to bring it down”.

The data comes two weeks ahead of the RBI’s policy review on July 31. Earlier, government data showed industrial growth in May had risen 2.4 per cent against a decline of 0.9 per cent in April.

While the central bank has been maintaining that growth may have to be sacrificed to bring inflation under control, industry has demanded a cut in key rates to boost investments.

“There is clearly a case for revisiting the monetary policy stance and loosening of policy rates to encourage investment and take initiatives to increase supplies,” D. S. Rawat, secretary-general of Assocham, said.

According to CII director-general Chandrajit Banerjee, a stable manufacturing inflation and the declining trend in overall inflation since last year should lead to the RBI lowering its policy rates. This in turn will “prop up industrial growth and revive the virtuous cycle of growth and spruce up business sentiments”.

The decline in inflation was mainly on account of subdued prices of manufactured products, which rose 5 per cent in June against 7.9 per cent in the same month last year. In May, prices of manufactured goods increased 5.02 per cent.

The continued double-digit food inflation because of the uncertainty over monsoons is expected to keep the pressure on the RBI.

Agriculture minister Sharad Pawar said, “This year monsoon is playing hide and seek. It is a challenge for our farmers to maintain the same performance as the last two years,” he said.

Shubhada Rao, chief economist with Yes Bank, said, “The inflation expectation still remains elevated, and the outlook is cautious because of the performance of monsoon, and its impact on food prices.”