Headline inflation eased a tad to 7.25 per cent in June from 7.55 per cent in May following a marginal cooling in prices of manufactured goods. But the decline in the WPI (wholesale price index) numbers is not significant enough to convince the Reserve Bank of India (RBI) to cut interest rates, as is being demanded by India Inc. to boost business confidence and spur growth.
WPI data for June 2012 released here on Monday revealed that even as headline inflation during the month was way lower than the 9.51 per cent pegged for June last year, it is the overall food inflation that continues to be a worrisome factor, especially in the wake of a truant monsoon which has been fuelling additional inflationary pressure on the prices of edibles.
As per the official data, food inflation in June this year inched up further to 10.81 per cent from 10.74 per cent in May as compared to a comparatively lower base of 7.6 per cent in June 2011. Even as the food articles group accounts for a weight of 14.3 per cent in the WPI basket, its contribution to the overall price rise and its impact on the common man is much larger.
Apart from the food price spiral in recent weeks, in anticipation of drought-like conditions in specific regions of the country, a fresh bout of inflation is already in the pipeline by way of increase in the price of the transportation fuel diesel — as and when it is pushed through by the government — which is bound to have a cascading impact on the overall price line. In the event, with the inflation level already much above the RBI’s comfort zone, it is unlikely that the apex bank would abandon its hawkish stance while reviewing its monetary policy on July 31.
Not surprising, therefore, that Planning Commission Deputy Chairman Montek Singh Ahluwalia dubbed the June inflation numbers as “a matter of concern” and said that it was high mainly because of food and non-core elements. “We hope that we will be able to bring it down...still a problem,” he said.
According to Prime Minister’s Economic Advisory Council (PMEAC) Chairman C. Rangarajan, while the inflation level showing some tendency to decline is a “good trend” with non-food manufacturing inflation at around 5 per cent which was “reasonable”, it is the primary articles and food inflation that needs to be watched. “The prospects for the monsoon are not very clear at the moment and, therefore, we need to watch out for food inflation,” he said.
However, the Finance Ministry continues to maintain an optimistic view both on the growth front as well as what the RBI would do with regard to its key policy rates. While Department of Economic Affairs Secretary R. Gopalan said that the fall in inflation would be “a significant input for RBI to take [a] view on monetary policy”, Minister of State for Finance Namo Narain Meena noted that the availability of food articles was likely to increase as the supply constraints would be addressed. “We are hopeful that this declining trend [in inflation] will continue,” he said.
The WPI numbers show that while the rate of price rise in the manufactured products stood lower at 5 per cent in June as against 7.9 per cent in the same month last year, food inflation rose mainly owing to rice turning dearer by 6.70 per cent, wheat 7.46 per cent, pulses 6.82 per cent and vegetables by 20.48 in June 2012 on a year-on-year basis.
Meanwhile, headline inflation for April stood revised upwards to 7.50 per cent, from the provisional estimate of 7.23 per cent.