Patchy monsoon may push up inflation to 8%

New Delhi: Erratic monsoon rains have once again put the spotlight on food prices which have remained a policy headache for more than two years.      Government's efforts to ease supply woes have had limited impact on food prices. Food inflation has remained in double digits for the past four months and both data for wholesale and retail points shows that food prices have remained elevated.      While the easing of overall inflation — based on the wholesale price index — has fuelled expectations that the Reserve Bank of India (RBI) may ease rates to support growth, economists now say the prospect of an interest rate cut in the July 31 monetary policy review appears to be dim. Adding to the worry is the increase in global food prices due to drought conditions in the US. The prospects of a drought in a few states in the country have also raised the anxiety levels. "Food prices will be a worrying factor for the next two-three months and will decide the course of inflation," said Samiran Chakraborty, regional economist at Standard Chartered Bank. "We are looking at the prospect of inflation touching 8% soon on the back of high food prices. We don't see any scope for a rate cut in the July 31 policy," he said.      Headline inflation stood at 7.25% in June, while retail inflation remained in double digits. Prices of vegetables have inched up in the past few weeks while increase in prices of pulses and some cereals has added to the pressure. Milk, eggs, meat and chicken prices have also remained sticky. "The IMD has indicated that rainfall may be lower in coming week. The risk to the department's forecast of rainfall being 96% of the longperiod average is clearly to the downside," Barclays said in a research note.      "Rainfall leads agriculture prices by three months, and a bad monsoon tends to have a negative impact on food prices. A good monsoon remains crucial in the Reserve Bank of India's policy calibrations, as it will haveimplications for both food inflation and growth, especially when industrial growth has remained poor," it said.      While the problem of stubborn food prices and its impact on overall policy is not new, experts say urgent action is needed and the outlook on food inflation would be shaped by the steps taken by the government to tame food prices. There has been limited progress on reforming archaic laws governing agricultural markets, while efforts to open up the multi-brand retail sector to foreign investment remains grounded.      "The main problem has been in vegetables, eggs, meat, fish and milk. All these are perishable items and you require supply chains. That supply chain requires huge investment in logistics, cold chains but more importantly they have to be linked to agro processing and modern retail," said Ashok Gulati, chairman at Commission for Agricultural Costs and Prices. "There is also a problem in pulses. In the short term, the government should import pulses and distribute through the public distribution system. For the medium term, you need investment in research and development for pulses and breakthrough in new seeds," he added. Global food prices are adding to inflation woes