The dominant concern from the last few months is food prices. It is still a central factor in macro economy...and it has created a huge challenge in terms of the impact of monetary action on control of inflation, said Gokran said at a statistical conference here.
He added that food prices are not high just because of a weak monsoon and poor rainfallthey acted as mere triggers. There is a need to understand what is driving food prices. This is an analytical issue. The dynamics of food prices is not the result of one failed monsoon. It is just a triggering factor, Gokarn said.
The RBI deputy governor also attributed rising prices to a changed basket of food consumption by Indians.
There is a diversification in household consumption pattern, Gokarn said. Policy approach to food prices is far beyond the capacity of monetary policy. There is a significant structural driver to food prices, he added. He added that rising affluence levels had increased the demand for food articles such as pulses and milk and that food production outside the pulses category had been relatively stagnant.
Inflation rose to 17.60% in the week ended June 12 from 16.86% in the previous week on account of a rise in prices of fruits, vegetables, and spices. It is widely expected that RBI may raise short-term lending and borrowing rates at its monetary review on July 27.
On Monday, finance minister Pranab Mukherjee had said the decision on policy rates is a prerogative of RBI and it would consider all relevant factors in its policy towards the end of July.
However, another RBI deputy governor, KC Chakrabarty, had said the probability of an interest rate hike before RBIs July 27 monetary policy review is very low. Chakrabartys comments follow Fridays move by the government to free-up petrol prices and raise prices of state-subsidised diesel, kerosene and cooking gas, which is expected to add to inflation.