Mumbai: The Reserve Bank has said that supplies need to be increased rapidly to tame rising food prices.

"The key difference between the earlier episodes (of prolonged high food inflation) and the recent one is the pair of commodities involved.

Earlier, it was cereals and sugar, now it is proteins and fruits and vegetables," RBI Deputy
Governor Subir Gokarn said last week in Pune.

Gokarn was delivering the Kale Memorial Lecture at the Gokhale Institute of Politics and Economics, Pune.

"In short, quickly increasing the productivity of proteins and fruits and vegetables is the highest priority, both from the perspective of development and standards of living and from the viewpoint of monetary policy," he said.

A permanent supply shock leads to lower growth and higher inflation, which could further fuel inflationary pressures through expectations, he said.

In this situation, central banks have to choose between the risk of inflation spiralling through expectations and the burden of slowing growth even further by anti-inflation policy
measures, he added.

The RBI Deputy Governor said that when prices rise on account of growing demand while supply stagnates or fails to keep up,there is no alternative to curbing food inflation than raising supply rapidly.

"The current pressure on the prices of proteins and fruits and vegetables is clearly the outcome of this combination of circumstances.

"However, raising productivity quickly is itself a serious challenge, given the pressures emanating from both labour costs and, over longer horizon, what appears to be a structural reduction in the absolute amount of rainfall," Gokarn said.

Food inflation remained in double-digit for most of 2010.

It moderated since March this year but remained volatile till
late October.

However, there has been a downward trend since then and the rate of price rise of food items fell to a 39-month low of 6.6 per cent for the week ended November 26.

Food inflation has a share of 14 per cent in the Wholesale Price Index (WPI) basket.

The apex bank has hiked its key-policy rates 13 times, totalling 350 basis points, since March 2010 to tame demand and curb inflation.

(Agencies)