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Resource centre on India's rural distress
 
 

Vegetable prices surge 61%, fuel 7.2% inflation in April
-The Economic Times

Soaring vegetable prices pushed inflation higher in April, while fuel and manufactured product prices sustained their pressure posing a fresh policy challenge and announcing the return of price pressures in Asia's third-largest economy.

Data released by the commerce & industry ministry on Monday showed the annual rate of inflation, based on monthly wholesale price index, stood at 7.23% for April, 2012, compared to 6.89% for the previous month and 9.74% during the corresponding month of the previous year.

Food inflation remained stubborn during the month. It stood at 10.49% compared to the previous month's 9.94% increase. This was the first time in six months that food inflation has breached the double-digit mark.

Vegetable prices, which had shown some signs of easing in the previous months, shot up an annual 60.97% in April compared to a 30.57% rise in March, while potato prices rose 53.44% year-on-year in April from the previous month's 11.60%. Price of pulses also shot up an annual 11.29% in April from the previous month's 10.05%. Egg, meat, fish and milk prices also remained stubborn in April.

While vegetable prices are often seasonal, in case of protein-rich items, supply has failed to keep pace with demand, which has exerted pressure.

Finance minister Pranab Mukherjee once again reiterated the government's concern but had nothing concrete to offer to tackle the problem of high food inflation which has been plaguing the economy for a significant period now. Experts have called for increasing productivity and reducing supply side bottlenecks to ease inflationary pressures but the response to the problem has been tardy.

"Food inflation is a matter of concern, particularly it has reached double digit...Food inflation can be tackled by creating storage facilities and cold chains and also through institutional reforms in agricultural marketing," Mukherjee said.

"In both these areas state governments have to take appropriate steps, I will also discuss with them," he said.

The acceleration in inflation hurt sentiment in the stock market, and was one of the factors which drove stock prices down on Monday. Growing uncertainty about the state of the economy, the global economic situation and the future of reforms have added to worries in domestic financial markets.

The index for food articles group rose by 4.9% to 206.4 from 196.8 for the previous month due to higher prices of fruits and vegetables (19%), barley (5%), tea (4%), masur, maize and bajra (3% each) and ragi and wheat (2% each) and fish-marine, gram, rice and milk (1% each).

The government also revised upwards the inflation number for February to 7.36% from the previously reported 6.95%, which analysts said showed that inflationary pressures remained strong.

The latest inflation data could also force the government to postpone any increase in fuel prices. The easing global crude oil prices could help, but any move to resist raising prices could upset its plans to repair government finances.

The index for manufactured products group rose by 1% to 143.6 from 142.2% for the previous month.

Economists said the Reserve Bank of India (RBI) is likely to be cautious in easing interest rates against the backdrop of inflationary pressures. Last month, the RBI had announced a surprise half-a-percentage point cut in interest rates to boost faltering growth, although it had warned that inflation remained a risk. Industrial output in March had declined 3.5% fuelling expectations that the central bank may aggressively cut interest rates to support growth.

"The April inflation outcome is a timely reminder for not being excessively optimistic about India's inflation outlook. In particular, the heightened expectation about RBI easing after the disappointing March industrial production should have evaporated after the inflation print. Admittedly, headline inflation is off its peak but still remains elevated," Rajeev Malik, senior economist at CLSA in Singapore.

"We maintain that inflation will continue to be a challenge for some time despite weaker growth. In fact, India is likely to continue with the combination of weak growth and still-high inflation, and it is best not to expect much in terms of easing from RBI," Malik.

Crisil Research said that over the past seven years, the Wholesale Price Index-based primary food index has risen to 206.4 in April, 2012, from 100.4 in April, 2005, which implied that over this period money needed to buy the same basket of food items has more than doubled.

"Food inflation is set to rise further with the steep hike proposed in minimum support prices (MSP). MSPs of food articles have witnessed a surge over the past three years. For instance, MSP in wheat has risen to Rs 1,120 per quintal in 2011-12, compared to Rs 630 per quintal in 2004-05. Since MSPs tend to set a floor for prices, wholesale price of wheat has also during this period moved higher in tandem," the ratings agency said in a report.

"With food inflation already crossing double-digit, any further increase in MSPs and hence market prices could push food inflation higher. With fuel inflation expected to remain high and manufacturing inflation set to rise, at least temporarily, to reflect the pass through of indirect taxes, higher food inflation will add to inflationary pressures. It would especially pose a threat if higher food inflation leads to the wage-price spiral, thereby raising overall inflation further," it added.