Food inflation could rise on fuel price hike

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New Delhi: Food inflation, which is already showing some signs of escalation since mid-May, could further shove up because of the Wednesday’s hike in prices of petroleum products, mainly of diesel.

Although, many experts believe that the impact of the hike in petrol and diesel would be felt with a lag on the energy intensive sectors (i.e those which use diesel and petrol like transportation), but given the speculation over kharif agriculture output on account of delayed onset of southwest monsoon over India the fear of an early impact still remains.

“Inflation is already in the negative territory, so a direct impact of more than 0.33 percentage points on the Wholesale Price Index shouldn’t be expected. Off course, indirect impact of the hike in prices of petrol and diesel on energy intensive sectors like transport that carry bulk of fruits and vegetables is always there,” said DK Joshi, principle economist, Crisil told FE.

He said much would depend on the ability of producers to pass on the impact of fuel price hike, because as it is demand from them at present is low. The rate of growth in prices of primary food articles as represented in the WPI has jumped from around 7.81% in early May to around 8.7% in the recent week, a level last seen in early April.

The government on Wednesday hiked the price of petrol by Rs 4 per litre and that of diesel by Rs 2 per litre for the first time this year to offset some of the losses being incurred by the oil marketing companies because of the recent rally in global crude oil prices. Crude oil in global markets has jumped from around $54 per barrel in the first week of May to more than $70 in the recent weeks because of renewed demand over hopes of an early end to the global recession.

Experts believe rise in prices of pulses, sugar, tea, potato and milk has been responsible for the sudden spurt in food inflation. “Food inflation is already on the rise, and now this hike in prices of petroleum products could further push it up in the coming weeks because fruits and vegetables are already in short supply because of the extended summer,” a Mumbai-based commodity analyst said.