The food inflation rose to 17.4 per cent for the week ended January 16 after recording a moderate decline in the previous three weeks. The inflation was at 16.81% in the previous week and at 10.85 per cent in the corresponding period previous year.

Food inflation has been high recently and in December last year it reached a two decade high of 20 per cent. The rise is due to supply side issues that have been aggravated by low agricultural output due to poor monsoons.

The data released by the commerce ministry on Thursday shows that the fuel inflation declined to 5.7%. The Reserve Bank of India is due for its policy review and its main concerns are the high prices.

The RBI is expected to increase the cash reserve ratio (CRR) by 50-75 basis points in the policy review tomorrow. Some analysts believe that the central bank could also increase in policy rates like repo and reverse repo while many others believe that the increase is highly unlikely.

The grain prices have largely remained flat however more expensive vegetables, spices and poultry products took the food inflation to the current level. The prices of cereals rose 46.87% from same period last year.

RBI has said that it is also concerned about the rising inflation of wholesale prices. A review from the central bank said, "Returning to high growth path while avoiding the situation of generalised increase in inflation through monetary policy action has emerged as a delicate challenge for RBI."

RBI and even some analysts believe that rising food inflation could spread to the manufacturing category and put pressure on general inflation.