High food inflation may deter hike in fuel price

Food inflation, the rate at which food prices are going up, rose for the third straight week to touch 18 per cent in January end due to short supply.
The biggest increase in prices, compared to the last year is in the case of pulses, vegetables and onions, ranging from 20-40 per cent. Economists don’t see any respite for the next several weeks till the rabi harvest starts. Higher food inflation may also reduce the government’s willingness to move on fuel prices. Economists also say that food prices are likely to stay high for a long time – as demand increases globally and agriculture investment in India stays flat.
“The government could bring down the food prices through imports and by releasing more products in the markets. They have already done this in small steps,” says Mr DK Joshi, an economist with Crisil.
The real problem right now is with pulses, says Mr Partha Mukhopadhyay, Centre for Policy Research. Food prices have been increasing for the past 3-4 years as developing world has seen strong growth, says Ms Atsi Sheth of Rel-iance Equities. This trend is expected to continue. So while high rate of inflation right now may fall, food prices will remain on an upward trajectory, she adds.
In the near term, prices of specific food items such as pulses, fruit and vegetables could fall as the rabi crop is harvested. However, India is already a net importer in several food products, and so prices here are partly linked to global prices.
Meanwhile, the high rate of food inflation could affect the government’s willingness to hike fuel prices. Petrol prices could perhaps be hiked, but a hike in diesel and kerosene prices will have to be graudal. The government also needs to restrain the growing fiscal deficit.
Meanwhile, the Reserve Bank doesn’t seem to be in a mood to raise interest rates before April. On the sidelines of a seminar, the RBI deputy governor, Mr Subir Gokarn, said, “Please don’t expect any action between now and the next announcement unless there is completely unanticipated and unwarranted event.”

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