The Reserve Bank of India on Thursday stated that inflation emerged as a major concern during the third quarter, dominated by significant supply factors.
On a year-on-year basis, WPI (Wholesale Price Index) headline inflation in December 2009 was at 7.3 per cent, whereas WPI inflation excluding food articles was 2.1 per cent, “which suggests the concentrated nature of the inflation so far,” the RBI stated on the eve of its third quarter review of its Annual Policy 2009-10.
Food items (that is, primary and manufactured) with a combined weight of 27 per cent in the WPI basket have exhibited 21.9 per cent increase in prices. In December 2009, there have been signs of emergence of generalised inflation. Weekly WPI data on primary articles indicate that primary food articles prices have increased by 17.4 per cent (year-on-year) for the week ending on January 16, 2010.
High food prices
The concentrated pressure on headline inflation arising from high food prices entails the risk of getting transmitted over time to other non-food items through expectations driven wage price revisions, and thereby magnifying into a generalised inflation.
Delicate challenge
In view of the dominance of food price inflation, the RBI stated, balancing the policy needs of supporting durable return to the high growth path while avoiding a situation of generalised increase in inflation through monetary policy actions has emerged as a delicate challenge for the RBI.
