Supply constraints are the main reason for food inflation crossing double digit levels and measures are needed to tackle it, the Finance Minister, Mr Pranab Mukherjee, has said.
“Food inflation is a matter of worry. It has reached double digit levels. Yesterday, the last week's figure was 10.6 per cent. Of course for the previous two weeks, it was perilously close to double digit figure. Actually it has now crossed that limit. We shall have to ensure that supply constraints are tackled,” Mr Mukherjee told reporters on the sidelines of a Vijaya Bank event here on Friday.
He, however, did not elaborate on how supply constraints are proposed to be tackled. Food inflation rose to a seven–week high of 10.60 per cent in the year to October 8, official data released on Thursday showed.
The Finance Minister's remark on food inflation is significant as it came days before the RBI's monetary policy review slated for October 25. It also indicated the Finance Ministry's discomfort in RBI pursuing with its tight monetary policy stance to tame inflation.
It is not only food inflation, but the overall wholesale price index (WPI)-based inflation which is a matter of concern for policymakers. The WPI-based inflation has stayed well above 9 per cent for nine consecutive months now. For the month of September, the headline inflation was 9.72 per cent.
With WPI based-inflation remaining too high for RBI's comfort, the central bank is widely expected to raise policy rates by at least 25 basis points at the upcoming second quarter monetary policy review.
In the last 18 months, the RBI had hiked its repo rates twelve times and cumulatively by 350 basis points to tame inflation. India Inc is of the view that RBI's policy actions have done more to slow growth than to tame inflation.
Ahead of the monetary policy review, the Reserve Bank of India Governor, Dr D. Subbarao, today met the Finance Minister, Mr Pranab Mukherjee at the latter's North Block Office for a customary meeting. .
Subbarao meets Pranab
Emerging from the 45-minutes long meeting, Dr Subbarao said that he had discussed the macro-economic situation with Mr Mukherjee.
Besides the inflation situation, both of them are understood to have discussed the recent fall in rupee against the US dollar. Earlier in the day, Mr Mukherjee had indicated that he would discuss the issue of falling rupee with the RBI Gov
ernor during today's meeting. The rupee had today breached the psychological level of Rs 50 to a US dollar on the back of increased purchases of greenback by banks, largely to help oil retailers fund their imports. A fall in the value of rupee will make imports costlier, thereby fuelling inflation.
The Chief Economic Advisor to the Finance Ministry, Dr Kaushik Basu, had recently noted that monetary tightening was not working and that some out of the box thinking was required to address the inflation problem.
Bankers are still divided on whether the RBI would raise policy rate at the October 25 meeting. “I will not be surprised if the RBI takes a pause. It is difficult to say which way the RBI will move,” Mr Nagesh Pydah, Chairman and Managing Director, Oriental Bank of Commerce (OBC), told Business Line here when asked about his expectations for the upcoming policy review.