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Food inflation hits double digits in mid-Aug, brings misery
September, 02nd 2011

Food inflation has hit double-digits in mid-August on the back of costlier onion, vegetables, fruits and protein-based items, prompting finance minister Pranab Mukherjee to say that the trend was disturbing.

Data released by the commerce and industry on Thursday showed food inflation, as measured by the wholesale price index, stood at 10.05% in the week to August 20 - up from the previous week's 9.80%. Food inflation had last hit double digits five months ago.

Food prices have remained volatile in recent weeks after displaying easing signs for a few weeks.

Onion prices are again proving to be a problem. The latest data shows onion prices shot up 57.01% year-on-year, fruits 21.58%; egg, meat and fish 12.62%; vegetables 15.78% and potatoes 13.31%.

Experts say heavy rains in the onion growing areas in Maharashtra might have hurt supplies, while the spurt in vegetable prices was attributed to seasonal factors.

"Food inflation has gone up. This is really disturbing," Mukherjee told reporters. "Inflation is always a matter of concern and we shall have to ensure that supply of food items improve," he said.

The government had announced some measures when food inflation hit double-digits last December, but the impact of these steps are yet to be felt. Experts say there is an urgent need to step up productivity as demand is far outstripping supply. Changing food habits and increasing disposable demands have pushed demand for protein-based items such as milk, eggs, meat, fish and poultry.

"Major structural reforms are needed. Fruits and vegetables should be taken out of the APMC Act and then you can reduce the margins and pass on the benefits to the consumers. Commission has to be reduced," said Ashok Gulati, chairman for the commission on agricultural costs and prices. He said there was a need to bifurcate the mandi system.

Earlier this year, a top government panel had said that there is a need to revise the agriculture produce market committee (APMC) Act to encourage competition among traders and also promote efficiency in retailing as some of the steps needed to calm inflation. But there has been limited movement on this front.

The finance minister has also said the government will take up the issue of revising the APMC Act with state governments. Mukherjee, in his budget speech, had highlighted the need for state governments to review and enforce a reformed APMC Act urgently to prevent spike in prices of vegetables and fruits.

Gulati said immediate steps should be taken to shore up the supply chain by involving domestic and foreign players to reduce wastage of fruits and vegetables.

The sharp rise in food prices in the past few weeks presents a fresh challenge to the UPA-II already battling a slew of corruption charges and facing a slowing economy. Global economic uncertainties have also added to its woes.

The index for food articles group rose by 1.2% to 195.0 from 192.7 for the previous week due to higher prices of poultry chicken (5%), fruits and vegetables and river fish (3% each), ragi, jowar, egg and gram (2% each) and fish-marine, moong, pork and bajra (1% each). However, prices of barley (1%) declined.

Economists say the Reserve Bank of India (RBI) is again likely to raise interest rates when it reviews monetary policy later this month as overall inflation still remains far above the central bank's comfort zone. Now, overall inflation hovers around 9%, and is expected to remain high for the next few months before easing to about 7%-8% by the end of the financial year next March.

The RBI has raised interest rates 11 times since March, 2010, to calm stubbornly high inflation and has identified taming inflation as its top policy priority. It has said it is ready to sacrifice some growth in the short-term to tackle price pressures.

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