The Hindu Business Line : Potato, onion and sugar prices shoot through the roof

New Delhi, Oct. 22 There is good news for weight watchers: If self-control doesn’t work, food prices are doing the trick. In the last one year, potato prices have gone up by over 104 per cent, sugar by 45 per cent, onions by 35 per cent, pulses by 23 per cent, rice by 13 per and cent and milk 10 per cent. Processed food items, consumed mainly by the well-off, also shot up by 16 per cent on an annual basis.

However, the headline inflation rate (Wholesale Price Index) has gone up by only 1.21 per cent. This masks the explosive surge in year-on-year inflation in food products, mainly due to low weights assigned to food articles in the WPI. On a sequential basis as well, food items continue to pinch, with onions recording an inflation of over 24 per cent, potatoes up over 15 per cent, fish prices surging 14 per cent, moong dal over five per cent and rice over three per cent during the latest week.

Worried by this, the Prime Minister’s Economic Advisory Council has also flagged food price inflation as the biggest problem facing the Government. Producer price inflation is expected to accelerate in the coming months as the statistical base effect becomes unfavourable and the nascent economic recovery spurs demand for manufactured products. The effect of the monsoon could deliver a further blow to food prices. The PMEAC has pegged inflation to hover around the 6 per cent mark by March 2010.

Interest rates

The latest reported inflation data set is the last before the central bank’s policy review on October 27. The broad consensus among economists is that the RBI is likely to leave rates unchanged as the economic recovery remains weak.

The RBI had reduced interest rates six times between October 2008 and April 2009 to record lows to shield the economy from the worst global recession since the 1930s. In its last policy statement on July 28, the central bank left the reverse repurchase rate unchanged at 3.25 per cent and kept the repurchase rate at 4.75 per cent.

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