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Food Inflation – Inefficient Governance – Corruption

January 10, 2011

Rising Food Inflation IndiaLatest weekly data released by the Ministry indicate that prices of food articles were up 18.3%YoY for the week ended 25 Dec, vs. 14.4% the previous week.

Key products contributing to the price rise over the week were vegetables such as onions, tomatoes, brinjal. Although prices of pulses continued contracting, other protein-rich items such as milk, eggs, meat and fish stayed firm. Among the non-food articles, fibres and sugarcane were the key culprits. Taking into account weekly trends, food inflation over December has averaged 13.6%YoY, while primary prod inflation averaged 16.5%YoY.

While prices of controlled fuels remain unchanged, the adjustment in market determined fuels has been gradual. Implementing recommendations of the Kirit Parikh Committee in full would directly impact the WPI to the tune of 96bps.

The most inefficient govt further intends to link wages under the NREGA to the CPI, which would result in minimum wages rising 17-30% from Rs100/day previously.

Factoring in primary and fuel articles rising by an average of 16.5% and 11.2% during December, we expect the RBI to hike rates on Jan 25.

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