New Delhi: Food inflation, a key driver of its headline inflation, remains uncomfortably high and is being steered by fundamental factors, a deputy governor of the central bank said on Thursday.
Higher food prices also indirectly push up inflation in the form of higher wage demand, Subir Gokarn added.
“Apart from the direct impact of the index, this is also likely to feed through into the wider inflationary process through higher wage demand, of which there is some evidence,” Gokarn said in a speech in the southern city of Chennai.
Food price index rose 9.13% and the fuel price index climbed 12.84% in the year to 11 June, government data showed on Thursday. In the previous week, annual food and fuel inflation stood at 8.96% and 12.84% respectively.
Food articles have a weight of little over 14% in India’s inflation basket.
“It is generally believed that food prices are highly sensitive to monsoon performance, but this belief has been tested over the past few years,” Gokarn said.
“I think there is sufficient evidence to suggest that food prices are being driven not by transitory factors such as rainfall, but by more fundamental factors.”
The wholesale price index , India’s main inflation gauge, rose an annual 9.06% in May, above the April figure of 8.66% and well above the Reserve Bank of India’s (RBI’s) projection of 6% by March 2012.
The RBI has clearly conveyed that its current focus is to rein in inflation, even at the cost of sacrificing some growth.
At its mid-quarter policy statement last week, the RBI raised interest rates for the 10th time in just over a year and signalled more increases to come even as growth in Asia’s third-largest economy is slowing down.
“Although the drivers of inflation in recent months have been energy prices and demand pressures as reflected in the non-food manufactured product index, food prices contributed significantly in the first half of 2010 and remains uncomfortably high,” Gokarn said.