After easing for three weeks in a row, food inflation inched up to 17.40 per cent, for the week ended January 16, a development that may prompt the Reserve Bank to hike key policy rates to tame the rising prices.
Food inflation, which was falling after touching the decade’s high of about 20 per cent in December, has risen again, driven mainly by rising prices of eggs and vegetables.
It stood at 16.81 per cent during the week ended January 9.
Rising food inflation, analysts said, could force the central bank to increase cash reserve ratio (CRR), the portion of deposits that banks keep with the RBI, by 50 basis points in the third quarterly review of credit policy tomorrow.
“I expect RBI to increase CRR by 50 basis points in its review tomorrow,” said Crisil principal economist D.K. Joshi.
High food prices led to firming up of overall inflation too, which rose to 7.31 per cent in December from 4.78 per cent in November. The overall inflation was at sub-zero levels for 13 weeks till last September.
On a weekly basis, the price index for food articles rose by 0.4 per cent on account of higher prices of eggs (6 per cent), vegetables (2.1 per cent), condiments and spices (2 per cent), and bajra and jowar (1 per cent each).
The inflation for primary articles, which include food and non-food items, stood at 14.66 per cent in the reporting week. Potato prices soared 57.56 per cent over the last year, followed by pulses which became dearer by 46.87 per cent.
“Right now there is no clear trend of food inflation. It will moderate, but not significantly. There will be no clarity till the Rabi crops. I expect it to remain at current levels for a few more weeks,” Joshi said.
He expects the overall inflation to cross 8 per cent by March-end. Joshi also sees hikes in repo (short-term lending) and reverse repo (short-term borrowing) rates by 25 basis points each in the monetary policy review tomorrow.
HDFC Bank Chief Economist Abheek Barua, too, expects food inflation to remain strong for some more weeks. Though he does not see any increase in the repo and reverse repo rates at the moment, he expects a CRR hike of 50 basis points.
“Moderation in food inflation has not been significant.
For the next month-and-a-half, I expect food inflation to remain fairly strong,” Barua said.
“The RBI will have to pay some heed to inflation. There is excess liquidity in the system. I expect RBI to raise CRR by 50 basis points thereby removing about Rs. 21,000 crore from the economy,” he added.
However, Barua said tightening of CRR would have little impact on inflation in the short-run. According to him, the overall inflation will be close to 9 per cent by March-end.
The annual rate of inflation for fuel, power, light and lubricants eased to 5.70 per cent over the week ended January 16 from 6.34 per cent for the previous week.