Food inflation a major worry: RBI dy chief
30 Jun 2010
Rising food prices have been a dominant policy concern for the last few months, deputy governor Subir Gokarn said on Tuesday, strengthening speculation that RBI may soon raise benchmark rates. However, Gokarn added that the response to food inflation is beyond monetary policy.
''The dynamics of food prices is not the result of one or two failed monsoons,'' Gokarn said on the sidelines of a statistics seminar organised by RBI in Mumbai. He said the rise in food prices was due to a combination of shifting consumption patterns, which was pushing up the demand for primary articles like pulses, and productivity of the agriculture sector being stagnant.
''The dominant concern from the last few months is food prices. It is still a central factor in the macro-economy ... and it has created a huge challenge in terms of the impact of monetary action on control of inflation,'' said Gokran said.
''As affluence spreads, there is diversification in food consumption patterns. There is a greater emphasis on protein-rich items, resulting in higher demand for pulses and milk. A significant part of the rise in food prices is structural in nature,'' he said.
India's food inflation rose to 17.60 per cent in the week ended 12 June from 16.86 per cent in the previous week. This rise was mainly due to a hike in the prices of fruits, vegetables, and spices.
Gokarn also pointed out that capacity constraints as well as deficient rainfall have affected productivity in the farming sector.
On Monday, finance minister Pranab Mukherjee had said the decision on policy rates is a prerogative of RBI and it would consider all relevant factors in its policy towards the end of July.
However, another RBI deputy governor, KC Chakrabarty, had said the probability of an interest rate hike before RBI's 27 July monetary policy review is ''very low''. Chakrabarty's comments follow Friday's move by the government to free-up petrol prices and raise prices of state-subsidised diesel, kerosene and cooking gas, which is expected to add to inflation.