Food prices have pushed head­line in­fla­tion up. In­fla­tion, which stood at 9.6 per cent last month, has now gone up to 13.7 per cent. This ac­cord­ing to da­ta from the Cen­tral Sta­tis­ti­cal Of­fice (CSO), stat­ed the Cen­tral Bank in its re­po rate re­port re­leased yes­ter­day. "In­fla­tion has ac­cel­er­at­ed fur­ther in mid-2010, dri­ven by an un­ex­pect­ed­ly large rise in do­mes­tic food prices. Head­line in­fla­tion, mea­sured by the 12-month in­crease in the In­dex of Re­tail Prices, rose to 13.7 per cent in June from 9.6 per cent in the pre­vi­ous month. The June out­come rep­re­sents the high­est year-on-year in­crease since Oc­to­ber 2008 when the rate peaked at 15.4 per cent. On a month­ly ba­sis, head­line in­fla­tion rose by 3.7 per cent com­pared to an av­er­age of 1.7 per cent over the past five months," the bank stat­ed. Fol­low­ing is an edit­ed ver­sion of the re­port.

"Food prices jumped sharply in June to 31.1 per cent (year-on-year), up from 19.4 per cent in May and 7.0 per cent in March. On a month­ly ba­sis, food prices rose by 9.6 per cent in June–the high­est month­ly rate of in­crease in well over a decade. "The re­cent floods in some key agri­cul­tur­al dis­tricts, in con­junc­tion with the se­vere drought which led to the wide­spread­ra­tioning of wa­ter ear­li­er in the year, have se­vere­ly ham­pered do­mes­tic crop pro­duc­tion. "In the 12 months to June, fruit and veg­eta­bles, which ac­count for 20 per cent of the food prices sub-in­dex, post­ed price in­creas­es of 48.0 per cent and 51.9 per cent, re­spec­tive­ly. Core in­fla­tion, which ex­cludes food prices, re­mained vir­tu­al­ly un­changed from the pre­vi­ous month at 4.3 per cent. "The steadi­ness of the core in­fla­tion rate over the past six months, along with the slow move­ment in pro­duc­er prices and the prices of build­ing ma­te­ri­als, sug­gest that un­der­ly­ing in­fla­tion­ary pres­sures have not ac­cel­er­at­ed.

Pri­vate sec­tor cred­it

"Pri­vate sec­tor cred­it has con­tin­ued to con­tract against the back­ground of weak do­mes­tic de­mand. On a year-on-year ba­sis, pri­vate sec­tor cred­it by the con­sol­i­dat­ed fi­nan­cial sys­tem de­clined for the ninth con­sec­u­tive month, falling by 5.0 per cent in May 2010. "Busi­ness cred­it al­so con­tin­ued to fall at a rapid rate (-11.2 per cent) out­strip­ping the rate of con­trac­tion of con­sumer lend­ing (-1.2 per cent). Con­verse­ly, re­al es­tate mort­gage lend­ing re­mains re­silient grow­ing by 6.1 per cent in the twelve months to May. "As­so­ci­at­ed with the slug­gish pri­vate sec­tor cred­it de­mand, liq­uid­i­ty in the bank­ing sys­tem has per­sist­ed at rel­a­tive­ly high lev­els, with com­mer­cial banks' bal­ances at the Cen­tral Bank in ex­cess of the re­serve re­quire­ment record­ed at just over $2 bil­lion in mid-Ju­ly.

Surge in head­line in­fla­tion

"The surge in the head­line in­fla­tion rate since the start of the year high­lights the in­or­di­nate im­pact that food prices are hav­ing on do­mes­tic in­fla­tion. "Mea­sures to aug­ment the amount of pro­duce avail­able at mar­kets and to stream­line dis­tri­b­u­tion chan­nels could help to bring food sup­plies back to more nor­mal lev­els. This may en­tail an in­crease in im­ports of cer­tain fruits and veg­eta­bles in the short run, de­pend­ing on how long it takes for lo­cal crops to re­cu­per­ate from the im­pact of the drought and sub­se­quent floods in the first half of the year. "There is no doubt that weath­er-re­lat­ed fac­tors have put pres­sure on do­mes­tic agri­cul­tur­al sup­plies re­sult­ing in sig­nif­i­cant volatil­i­ty in some ba­sic food prices and con­se­quent­ly in head­line in­fla­tion. "Thus for ex­am­ple, the 12-month change in the food price in­dex has moved from 25 per cent in Jan­u­ary 2009 to mi­nus 1.0 per cent in De­cem­ber 2009 and to 31 per cent in June 2010," the bank stat­ed.