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Food inflation may linger despite good monsoon: India Ratings

By Super
Food inflation may linger despite good monsoon:India Ratings
Mumbai: Despite favourable impact of monsoon, the sharp decline in overall inflation is unlikely in near future, rating agency India Ratings & Research said on Tuesday.

Headline inflation, on y-o-y basis, increased to 6.5 percent in September 2013 from 6.1 percent a month ago, led by inflation in primary food products (18.4 per cent) and fuel and power (10.1 percent).

Even the consumer price index based inflation for September 2013 escalated to 9.84 percent as compared with 9.54 percent in August 2013, India Ratings said in a report.

Wholesale inflation in September 2013 increased by 0.36 percentage points over August 2013. Fruits and vegetables, and crude petroleum contributed 71.2 percent and 21.4 percent, respectively, to the increase in wholesale inflation in September 2013.

Fruits and vegetables inflation increased to 49.1 percent in September 2013 from 42.4 per cent in August 2013 and crude petroleum inflation increased to 6.1 percent in September 2013 from a deflation of 2.5 percent in August 2013.

Quoting no change in RBI policy stance, India Ratings said that reversal in inflation trajectory has reduced the Reserve Bank's elbow room to ease policy rates.

Currently, marginal standing facility (MSF) rate is the operational overnight lending rate for the RBI; India Ratings expects easing of MSF rate and hardening of repo rate in second quarter review of the Monetary Policy on October 29.

Over the next few quarters, the agency expects the spread between MSF and repo rate to revert to the normal 100 basis points. On the liquidity front, however, some liquidity infusion measures to correct the inverted yield curve are highly likely. Also, the introduction of innovative financial instruments over the next two quarters cannot be ruled out, the report said.

The rating agency said the food inflation, after falling to single digit in March 2013, has crept to double digits since June 2013. The spurt in vegetable prices since June 2013 has been one of the key drivers of food inflation lately. Due to adverse supply conditions, onion witnessed 323 per cent inflation in September 2013.


While cereals inflation is gradually declining, new rice crop will have an impact on rice inflation (18.8 per cent in September 2013), the agency said.

Although vegetable prices have increased due to adverse weather conditions and supply shocks over the past few months, the onset of winter is likely to provide some breather.

Typically, the supply of fresh vegetables and fruits goes up during winters. Moreover, wastage of fruits/vegetables also drops as the shelf-life of these items, even in the absence of proper refrigeration, increases due to favourable weather conditions.

The manufacturing sector has been adversely impacted due to a sustained weakness in both domestic and global demand. Index of industrial production over April-August 2013 grew by just 0.1 percent y-o-y. This has reduced the pricing power of companies to offset rising input/wage costs.

Although both-manufacturing as well as core (non-food manufacturing) inflation increased marginally in September 2013 from August 2013, they continue to be low and well within RBI's target range of 5 percent or less. In September 2013, manufacturing and core inflation was 2.0 percent and 2.1 percent, respectively, according to the report.


Story first published: Wednesday, October 16, 2013, 9:05 [IST]
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