New Delhi: Transport disruptions because of monsoon showers and high fuel cost increased food inflation to 12.81 per cent for the week ended July 3, heightening the likelihood of RBI raising short-term rates in its July review.
However, inflation for fuel and related items fell to 14.27 per cent in the week compared to over 18 per cent in the previous week due to base effect.
Since inflation is calculated year-on-year, relatively higher figures last year make the prevailing prices look
smaller in comparison.
Economists attribute the 0.18 percentage point rise in food inflation from 12.63 per cent in the previous week to transport hassles and the hike in fuel prices.
This broke the two-week declining trend in food inflation. Rice, wheat, pulses, and onions - all turned costlier in the range of 0.03-3.80 percent on weekly basis.
However, potatoes became cheaper by 0.85 per cent and fruits by 0.91 per cent. Tomatoes, which have become exorbitant over the period, however, did not see any change in prices.
Prime Minister's Economic Advisory Council member Govinda Rao said, "The marginal jump (in food inflation) was expected.
The hike in fuel prices has definitely led to a jump in the transportation costs. The fuel price hike will take time to be reflected fully."
Economic think tank ICRIER director Rajiv Kumar said the effect of the fuel price hike has not come fully and one has to wait for the next few weeks to see it arrive.
"Rise (in food inflation) is due to seasonal factors like rain and transportation hassles during the monsoon. The new crop is also yet to come," he said.
Yesterday, Finance Minister Pranab Mukherjee had expressed hope that inflation would ease after Kharif season is over.
Kumar also said, "We expect prices to moderate by October when the new crop comes into the market and the low base of last year is over."
He expected RBI to go for a 25 basis points hike in the short-term lending and borrowing rates at its July 27 meet.
The central bank upped these rates by 25 basis points earlier this month to tame inflation. The overall inflation shot up to 10.55 per cent in June from 10.16 per cent in the previous month.
Analysts say the July figure can be much higher if the upward trend in food and manufactured items continues for the rest of the month.
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