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Food inflation declined, but still remained at an elevated level of 16.91 per cent for the week ended January 1, prompting the government to assure more steps to rein in prices of essential items that have moved up.

Even as food inflation moderated from 18.32 per cent from the previous week, overall inflation is likely to be pushed up in the range of 8.2-8.5 per cent in December from 7.48 per cent in the previous month, economists said.

The overall inflation for December, slated to be released tomorrow, is expected to pressure RBI to further hike policy rates at its January 25 policy review, despite industrial growth plunging to 18-month low in November.

Even as food inflation showed a meagre decline, vegetable prices were up 3.84 per cent during the week, with onion rates rising by 1.73 per cent. 

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With prices of the bulb already up, this much rise in its prices within a week, makes it still costlier. The extent of rise could be gauged from the fact that onion turned expensive by 70.70 per cent year-on-year.

Overall vegetables were costlier by 70.73 per cent on an annual basis. Among the individual items in the food inflation index, egg, meat and fish became costly by 16.70 per cent, milk by 13.20 per cent and fruits by 17.71 per cent annually.

However, prices of pulses declined by 14.84 per cent, wheat by 4.87 per cent, potatoes by 1.67 per cent and cereals by 0.12 per cent on an annual basis. In the non-food category, the prices of fibres and minerals have climbed 36.71 per cent and 16.70 per cent respectively.

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Analysing the inflation figures, Standard Chartered regional head of research Samiran Chakraborty said there has been no real decline in prices of vegetables.

"Year on year drop is mainly because of the base effect. Prices continued to remain high. However, week-on-week milk and electricity (prices) have declined," Chakraborty said.

Exuding confidence of being able to rein in food prices, Finance Minister Pranab Mukherjee told reporters ,"We have analysed the situation. We have indicated what further steps we are going to take."

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However, he cautioned against any "unnecessary panic." "We have also indicated that there should not be any unnecessary panic. I always believe, today it is very encouraging weekly fluctuation, next week it may be or not be, because of one or two or three commodities," he said.

Expecting RBI to hike rates by 25 basis points in January policy review, Chakraborty pegged overall inflation to be 8.3-8.5 per cent in December.

However, Crisil chief economist D K Joshi expects food inflation to come down further, unless there is another supply constraint.

He expected overall inflation to stand at 8.2 per cent in December, but that the rate would moderate to 6.5 per cent by March-end.