The moderation will turn into a firm decline over the coming months

Food inflation eased marginally to 8.96 per cent for the week ended June 4 from 9.01 per cent in the previous week owing to cheaper pulses and vegetables amid expectations that following a good monsoon, the moderation will turn into a firm decline over the coming months. Airing this optimism, Prime Minister's Economic Advisory Council (PMEAC) Chairman C. Rangarajan said: “Since the monsoon is expected to be normal, one can expect the food inflation to come down in the coming months.”

The Reserve Bank of India (RBI), which hiked its key policy rate by 25 basis points on Thursday as a monetary measure to tame overall inflation, holds similar views. “The progress of southwest monsoon has so far been satisfactory, which augurs well for agricultural production,” the apex bank said its mid-quarterly review.

Cause for concern

Evidently, a definite dip in food inflation is expected to go a long way in cushioning the overall impact of the price spiral and result in lower headline inflation.

Already, with the prices of pulses slipping by over 10 per cent and vegetables by 1.39 per cent on a year-on-year basis, food inflation, as measured by the Wholesale Price Index (WPI), during the week was way lower than the over 21 per cent recorded for the period in June last year. However, even as food inflation appears to be easing somewhat from its recent highs, the cause for concern is that the surge in prices is spreading to the non-food segment which, according to the RBI, renders monetary policy tightening necessary.

With headline inflation pegged at 9.06 per cent in May — way above the apex bank's ‘comfort zone' of 4-5 per cent — mainly owing to the price spiral in manufactured items, the RBI policy review said: “Based on the current and evolving growth and inflation scenario, the Reserve Bank needs to persist with its anti-inflationary stance of monetary policy.”

Inflationary pressure on the non-food segment (core inflation) is discernibly on the rise, especially in manufactured goods.

Inflation in manufactured items rose from 8.5 per cent in March, to 6.3 per cent in April and further to 7.3 per cent in May this year which is way above its medium-term trend of 4 per cent.

The latest WPI data shows that fruits were dearer by nearly 30 per cent, milk by 10.59 per cent and eggs, meat and fish by 7.31 per cent on a yearly basis.

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