High prices of onion and other kitchen items drove the headline inflation to six-month high of 6.1 per cent in August, limiting options for a rate cut by the new Reserve Bank of India (RBI) Governor Raghuram Rajan, who is scheduled to announce his maiden monetary policy review later this week.
Wholesale price index (WPI)-based inflation rose for the third straight month, driven by a steep 244.62 per cent jump in onion prices on an annual basis. WPI inflation was 5.79 per cent in July.
Inflation in the vegetable basket as a whole was 77.81 per cent, and, in the fruit segment, it was 8.17 per cent in August. The food segment as a whole became costlier by 18.8 per cent during the month. On the positive side, potato prices fell by about 15 per cent, followed by pulses which became cheaper by 14 per cent.
In the case of manufactured items, sugar and edible oils became cheaper by 4.2 per cent and 3.86 per cent, respectively. Overall, manufactured items showed a moderate increase of 1.9 per cent during the month on annual basis. The latest inflation data is going to weigh high on Dr. Rajan’s mind when he announces the mid-quarter monetary policy on September 20. The industry has been demanding a cut in key policy rate to spur economic growth.
Prime Minister’s Economic Advisory Council (PMEAC) Chairman C. Rangarajan said inflation, besides forex market, was expected to weigh on the RBI’s decision on its policy.
“All that I can say is that the RBI, I believe, will take into account the behaviour of inflation as well as what is happening in the foreign exchange market and take a decision,” he said on the sidelines of an Assocham-organised event here.
Confederation of Indian Industry (CII) Director-General Chandrajit Banerjee said: “The rise in inflation should not come in the way of the policy of forthcoming monetary policy on September 20, as it is of utmost importance to revive investor sentiment.”
“The key concern for a long time now is that rise in food prices continues to contribute strongly to overall inflation. It is, therefore, important that structural factors affecting food inflation are addressed on a priority basis,” Federation of Indian Chambers of Commerce and Industry (FICCI) Secretary-General Didar Singh said.
The high increase in prices was also seen in other essential food items such as rice, cereals, egg, meat and fish
“The jump in food prices has undermined the overall performance of WPI inflation which could have been below 5 per cent if food prices had not escalated. Government should focus on easing supply chain bottlenecks and make provisions for consumers to buy directly from farmers,” President of PHD Chamber of Commerce Suman Jyoti Khaitan said.
The food items became costlier by 18.8 per cent on a year-on-year basis.
“This (inflation) would further affect the prospects of economic growth revival and the corporate sector will continue to bear the brunt of higher growth in input prices,” Assocham Secretary-General D. S. Rawat said.
“The Reserve Bank must ensure that the cost of finance to the end-user becomes competitive without any further delay. The upcoming mid-quarter monetary policy review must not resort to interest rate tightening, as that would further push the prices up,” Mr. Rawat said.
“While keeping inflation under check has to be a priority, it is imperative that we continue efforts to rekindle investor sentiment and push for higher growth,” Mr. Singh said.