With inflation falling to a two-year low, Finance Minister Pranab Mukherjee today hoped it will drop further to 6 per cent by March, but warned that high prices of edible oils and milk could stoke food inflation, which is currently ruling in the negative.
“I think it (inflation) should be further reduced since it is still not at acceptable level,” he said.
Mr. Mukherjee was confident that moderation in overall inflation would continue in the coming months also and the March end inflation would be “closer to 6 per cent”.
While the Wholesale Price Index (WPI) based inflation declined to a 25-month low of 6.55 per cent in January, there has been a significant drop in food inflation. The monthly food inflation is negative (at -0.52 per cent in January) for the first time in recent times.
However, “the main worry going forward is on edible oils, milk and some animal proteins which may continue to threaten food inflation, as the required institutional reforms in agricultural marketing and improvement in storage and cold chains will...(happen) with a lag,” he added.
The inflation in edible oil and milk in January was high at 9.59 per cent and 12.6 per cent, respectively, while egg, meat and fish were at 18.63 per cent.
Also, inflationary pressure continued in manufactured items, which have a weight of around 65 per cent in the WPI basket. Prices of manufactured products went up by 6.49 per cent year-on-year in January, as against 7.41 per cent in the previous month.
“...softening in the prices of manufactured goods despite the rapid decline in non-food primary inflation, may be more gradual,” the Finance Minister added.
Headline inflation was near double digit for most of 2010 and 2011. The apex bank hiked key policy rates 13 times, totalling 350 basis points between March 2010 and October 2011, to tame inflation.