After remaining in the sub-five per cent levels for the last few months, headline inflation inched up again to a five-month high of 5.79 per cent in July from 4.86 per cent in June, mainly owing to high food inflation led by rising prices of onions and other vegetables.

Even as the inflation figure in July this year, as measured by the wholesale price index (WPI), is lower as compared to 7.52 per cent recorded for the same month in 2012, it is already north of the Reserve Bank of India’s comfort level of 4-5 per cent and has moved up at a time when both the government and the apex bank are engaged in battling a widening current account deficit (CAD) and a consequent slide in rupee value.

Food articles soar

The WPI data released here on Wednesday revealed that having gradually eased from a high of 7.28 per cent touched in February this year, headline inflation has surged over the 5 per cent mark in July primarily on account of inflation in the food articles category soaring to 11.91 per cent from 9.74 per cent in June.

With food articles having a 14.34 per cent share in the overall WPI basket, rising prices of onions and other vegetables along with cereals have been leading the price rise for the third straight month. Prices of onions, for instance, have more than doubled in July and are up 145 per cent on a year-on-year basis.

Keeping pace has been the other vegetables with their prices surging by nearly 47 per cent during the month on a year-on-year basis as compared to 16.47 per cent in the previous month.

The fresh spiral in food prices has come at a time when the monsoon has been good and supplies remain constrained . Besides, the rupee depreciation has rendered oil imports costlier and this has been adding to overall inflation.

In its first quarter monetary policy review last month, the RBI pointed out that the stronger-than-expected monsoon did not soften food inflation as much as it should have and, in particular, vegetable prices have been impacted by weather-driven supply disruptions.

Rupee depreciation

According to Planning Commission Deputy Chairman Montek Singh Ahluwalia, the rise in inflation was mainly on account of depreciation in the value of rupee currency against the dollar . “With the currency appearing to stabilise, I don’t expect this [inflation] to continue. I think if we can get moderation on the food front once the impact of the good monsoon becomes available, I think we will end the year [with WPI inflation] between five per cent and six per cent,” he said.

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