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Notwithstanding the latest spell of softness, food prices may continue to wreck havoc in the coming months. The wholesale price index for food articles for the week ended 6th March 2010 rose by lowest in two months and rising rabi supplies are assuring to keep the price fever under check.

However, a deep scrutiny of the underlying factors suggests that falling prices are unlikely to be a continuing feature of the economic scene. Rising food prices are bad - pushing the poorest into starvation and exerting downward financial pressure on all but the wealthiest consumers. The coming months promise to bring in even more upward pressure on the prices as the demand side forces build up due to impressive economic numbers.

India's food price index as on March 6th was down by a sharp 1.1% compared to its week ago levels largely due to a fall in the prices of vegetables and pulses. The current softening of food prices may be a welcome sign for the masses after being persecuted for months. However, the hike in the petrol and diesel prices, an overall moderation in the tempo of the food grain output and cascading effect of the high food prices on the manufactured items have to yet play themselves out. A combination of all these factors would mean that inflationary pressure would be hard to rein in by the middle of the current year. Things could take a really nasty turn if the rain gods fail to bless the economy this year too.

The prices have come down as the rabi crop arrivals have started in some of the places. The latest release shows that lower prices of urad and arhar (dropping 6% each), moong (down 3%), tea and fruits & vegetables (shedding 4% each), eggs (down 2%) and masur, fish-marine, gram, bajra and wheat (losing 1% each), have been instrumental in pulling the food prices lower. The oilseeds prices are also on the way down with niger seed (10%), soyabean (6%), sunflower (4%), rape & mustard seed (2%) and copra and linseed (1% each). With this the year-on-year food inflation has fallen to 16.3% from 17.8% week ago.

The food prices have been constantly on the way up in the last few years, irrespective of the economic conditions and monetary policy responses. The latest economic survey noted that as regards food inflation, the upswing noticed in the first quarter of 2008-09, continued during 2009-10 due to unfavorable southwest monsoon, the worst since 1972. Though the current spectre of double-digit inflation in food articles is ascribable to supply-side constraints, it is necessary to ensure that the monetary policy stance does not lead to pressure on prices.

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* Contributed by: -
Sachin Dabhade, is a Post Graduate in Finance from Sydenham Institute Of Management, Maharastra. Currently he is Working at Capital Market Publications Pvt. Ltd. as Senior Analyst - Commodities.