Food inflation rose for the third week running as floods disrupted supplies, but most economists see food prices easing soon.
Inflation in food articles in the new series with 2004-05 base was 15.1% for the week ended September 4, compared with 14.6% in the week before, data released on Thursday showed. The central bank chose to lift rates in its policy review on Thursday saying inflation is still a big concern.
RBI lifted repo rate, or the rate at which its lends money, by 0.25 percentage point and reverse repo rate, or the rate at which banks park their surplus, by 0.50 percentage points to combat high inflation.
“Inflation remains dominant concern in macroeconomic management,” the central bank said in a statement. “Prices of food articles, which according to the new series rose by over 14% in August are still contributing to the (price) pressure,” it said. Finance minister Pranab Mukherjee endorsed the rate increase saying inflationary pressures are still there in the system.
Economists, however, expect food prices to moderate soon. “There is some supply side constraint due to rain. Areas like Punjab, Haryana, Maharasthra have seen huge disruption by rains,” said Saugata Bhattacharya, economist with private sector lender Axis Bank.
In the new series, the weight of cereals has come down to 3.37% from 4.41% in the earlier series while that of fruit and vegetables has gone up to a total of 3.85%, against 2.92% earlier. Vegetables and fruits became dearer during the week but prices of most cereals declined.