Food inflation aceelerated in the last week of May to its highest in eight weeks as prices of cereals , vegetables and milk hardened, indicating that headline inflation may remain sticky in the month.
The central bank is expected to raise rates again in its June 16 review despite sighs that consumer demand may be dropping sharply. The rise in food inflation has firmed up those expectations. The benchmark BSE Sensex ended 9 points down at 18,385 while bond yields firmed up further. The index for food articles rose 9% for the week ended May 28, up nearly a percentage point from 8.1% in the previous week, data released on Thursday showed.
Fuel inflation remained unchanged at 12.5%. Food and fuel articles together have a 29% weight in the wholesale price index. Fuel inflation has been over 12% all through May while food inflation has firmed up from 7.5% at the beginning of the months. Headline inflation in April was 8.66%. The data for April will be released on June 14.
Economists expect a good monsoon to temper the pace of food price rise. “The current spike has to be viewed as transitional and going forward, food inflation would depend on the progress of monsoons,” said Saugato Bhattacharya, senior vice-president, Axis Bank .
Even the government is counting on good rains to moderate price rise. “If the monsoon is favourable, food prices will come down over the next 2-3 months,” Prime Minister’s Economic Advisory Council Chairman C Rangarajan said. Monsoon arrived before time in Kerala in the last week of May and has progressed into Maharashtra and Andhra Pradesh and the forecast say it will gain momentum in next few days.
However, Sunil Sinha, head of research and senior economist, Crisil, cautions against putting too much hope in the rains. “Food inflation is no longer driven by cyclical factors but structural factors have become more important,” he said.