Overall food inflation down

New Delhi, July 28: Cheaper pulses pulled down food inflation to its lowest in 20 months at 7.33 per cent for the week ended July 16 even as prices of potatoes, onions, fruits and milk hit the household budgets.

Food inflation, as measured by Wholesale Price Index, had stood at 7.58 per cent in the previous week. The decline could also be attributed to the high inflation figure of 18.56 per cent for the corresponding year-ago period, a phenomenon dubbed ''high base effect'' in economic parlance.

"These weekly figures fluctuate mainly on the base (effect). Therefore, they do not show any definitive trend...there is still inflationary pressure (in the economy)," Finance Minister Pranab Mukherjee said.

Headline inflation stood at 9.44 per cent in June. It has been above 9 per cent since December 2011.

During the week under review, prices of pulses fell by 8 per cent year-on-year. However, prices of onion went up 22.66 per cent, while milk (9.96 per cent), fruits (13.90 per cent) and potatoes (10.55 per cent) also showed a rise.

Overall vegetables became expensive by 7.59 per cent on an annual basis. The latest figure is the lowest since separate weekly data for food inflation was first released in November, 2009.

However, the pressure is evident in primary articles which recorded inflation of 10.49 per cent for the week ended July 16, though down from 11.13 per cent in the previous week.

Prices of non-food articles like fibres, oil seeds and metals went up sharply to 16.05 per cent from 15.50 per cent in the previous week. Meanwhile, the index for fuel and power stood at 12.12 per cent.

"The high base has a role to play as food inflation was quite high, in double-digits, for most of 2010. However, we may see some further decline in the rate of price rise of food items in the next few months," Crisil chief economist D K Joshi said.

While the Finance Minister does not find a great comfort in some moderation in food inflation, it could come as relief for the government and the RBI which have been battling to check the problem.

In its first quarter review of monetary policy earlier this week, the RBI raised its overall inflation projection for March, 2012, to 7 per cent from 6 per cent estimated earlier, "in view of the domestic demand-supply balance, global trends in commodity prices and the likely demand scenario".

The apex bank had also pointed to risks on the food inflation front "stemming from the monsoon performance, higher minimum support prices and inadequate supply response pertaining to protein-rich items".

The RBI has already hiked interest rates 11 times since March, 2010, to tame demand and curb inflation.

Economists said more rate hikes could be on cards if high headline inflation persist, something on which the central bank has already given enough signals.

Commenting on the latest figures, ICRA economist Aditi Nayar said: "The decline in the pace of food inflation... was partly led by the base effect, and this trend is expected to reverse in the coming week".

She also expressed concern over the rising prices of vegetables, fruits and protein-based items.

PTI