Food inflation for the week ended December 26 recorded a drop to 18.22 per cent from the 19.83 per cent a week earlier. Earlier food index had reached to an 11 year high of 19.95 per cent on week ended December 5.

The moderation on the weekly basis was noticed in prices of fruit and vegetables which reduced 6%, grams 3% and Tea 1%. Inflation based of annual wholesale price was at 4.8 per cent in November and some expect it to go up to 8 per cent by the end of this fiscal. On a yearly basis Potatoes recorded a 110 per cent price rise with pulses costing 42.21 per cent more.

Inflation for another segment, Fuel rose to 4.85% from 4.45% in the week before following a rally in crude prices. An expert believes that the moderation in food prices would keep the inflation below the projected 8-8 .5% even as fuel and commodity prices increase.

As the global recovery sets in, the price of manufactured products is rising even as the food inflation has moderated. The rise in cost of key inputs such as fuel, copper, aluminum and steel have put an upward pressure on consumer durables.

The higher minimum support price and a week monsoon resulted in double digit food inflation. The moderation of the prices of food though records a noticeable change on weekly basis but items remains expensive on yearly basis. Experts expect the RBI to take steps to curb inflation as it reaches 14.39 for primary articles including unprocessed food and non-food items.

The RBI is expected to tighten the monetary policy if the Index for Industrial Production (IIP) continues to show a healthy 7-8 per cent growth. The RBI could hike Cash Reserve Ratio and raise interest rates. Experts point out that an increase in interest rates cannot curb inflation as it results from the supply issues, it can control the repercussions of food inflation on other items.