The central bank has warned that "the increase in the price of food items, given the income levels, could translate into a wider inflationary phenomenon due to adverse price expectations".

Stating that the overall monetary situation will have to be watched and brought under control so that inflationary pressures are eased, the central bank said "there is no trade-off between growth and price stability in the short run". It has also vowed to ensure that growth with price stability is achieved without compromising on the financial soundness of the system.

The annual inflation rate has been a little over 8 per cent as on August 1.

Attributing the rise in inflation to the sharp rise in the prices of a few primary articles like fruits and vegetables owning to shortage of supplies and seasonal factors, the RBIhas asked the government to signal to the market the policy stance in regard to use of buffer stocks of foodgrains and continue with initiatives to wastages.

It has also called for institutional changes like introduction of futures trading and application of definitive of marketing practices and standards.

Prices of primary food articles rose by 33.6 per cent in the first quarter of the current fiscal compared with 1.5 per cent increase in the corresponding period in the previous year. On a financial year basis, the inflation rate at 3.1 per cent on June-end 1998 was substantially higher than the corresponding period in the previous year at 1.1 per cent.

At the end of first quarter of 1998-99, the annual inflation rate was pegged at 7.4 per cent, up from 5.6 per cent in the corresponding period in the previous year. In March 1998, the rate of inflation was pegged at 5.3 per cent.

Reflecting the upward trend in prices of food articles, the consumer price index for industrial workers (CPI-IW) increasedby 12.4 per cent at June end 1998 as compared with 6.6 per cent in the corresponding period in the preceding year.

During the financial year 1997-98, the annual inflation rate measured in terms of variation in the wholesale price index (WPI) declined to 5.3 per cent from 6.9 per cent in the previous year. On an average basis, the inflation rate was lower at 4.8 per cent during 1997-98 compared with 6.4 per cent in the preceding year.