Food inflation back in double digits, more rate hikes likely

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New Delhi, Mar 24 : Food inflation was back in double digits at 10.05 per cent for the week ended March 12 after a fortnight long gap on costlier vegetables, fruits and protein-based items.
Food inflation, which has been showing a declining trend for the last three weeks, stood at 9.42 per cent in the week ended March 5. In the corresponding week of the previous year, food inflation was more than double, at 20.62 per cent, official data released here showed.
During the week under review, prices of vegetables went up by 11.20 per cent year-on-year. Fruits became costlier by 23.60 per cent and eggs, meat and fish by 13.21 per cent.
Experts said demand-supply mismatches were responsible for the sudden spurt in prices of food items.
"Being perishable, prices of fruits and vegetables tend to display considerable volatility, reflecting prevailing demand-supply dynamics. Broadly, food prices are expected to ease subsequent to the rabi harvest," ICRA Economist Aditi Nayar said.
HDFC Bank chief economist Abheek Barua said, "It is alarming that food inflation has risen to double digits. We are again seeing a reversal on the part of food inflation, which is a cause of concern. The surge in prices could be because of supply side disruptions," Barua said.
The rate of price rise in food items, which accounts for over 14 per cent of overall inflation, may prompt the Reserve Bank to hike key policy rates. Headline inflation has been above 8 per cent since March, 2010, and in February, 2011, it was 8.31 per cent.
"The Reserve Bank is expected to hike short term monetary policy rates (repo and reverse repo) again by 25 basis points in its next review in May to balance the trade-off between growth and inflation," Barua said.
The RBI has already hiked its key policy rates eight times since March, 2010. The last hike was taken at its mid-quarterly review on March 17 this year.
"There is a strong possibility of another 25 basis points hike in repo and reverse repo rates in the next RBI short-term monetary policy review which is due in May," Crisil Chief Economist D K Joshi said.
The RBI had also revised the March-end inflation forecast upward to 8 per cent from the earlier projection of 7 per cent in its mid-quarterly review last week.
Barua also cautioned against inflationary pressure from oil prices.
"There would be a continuous increase in the prices of decontrolled (oil) products. Moreover, the prices of diesel could be hiked after elections in four states and one union territory in the country," he said. .