Inflation based on the wholesale price index (WPI) continued to remain in double digits in June as it moved up a tad further to 10.55 per cent from 10.16 per cent in May owing to the hike in fuel prices effected during the fag end of the month.
Considering that the WPI data for July will reflect the full impact of the hike in petroleum product prices by way of a further rise in overall inflation, it is a near certainty that the Reserve Bank of India (RBI) will tinker with the key policy rates yet again during its monetary policy review later this month so as to contain the spiral.
Although the rise in inflation in June may be partly accounted for by the low base effect — overall inflation was minus 1.01 per cent in June 2009 — the fact remains that the final figures for the month could even be higher, as has been for April which stands revised to 11.23 per cent from the provisional estimate of 9.59 per cent.
On June 25, the government had deregulated petrol and increased its prices by Rs. 3.50 a litre (2 per cent), while increasing the prices of diesel by Rs. 2 a litre (one per cent), kerosene by Rs. 3 a litre (9 per cent) and domestic LPG by Rs. 35 per cylinder (3 per cent). As a fallout of the upward revision, even as prices of the non-administered petroleum products such as aviation turbine fuel (ATF), naphtha, furnace oil, light diesel oil and bitumen declined during June, the ‘fuel, power, light and lubricants’ category added to the overall inflation by way of a 1.7-percentage-point rise.
Conceding the impact of the hike in fuel prices, Finance Minister Pranab Mukherjee said: “The June inflation figures were expected, because there had been the impact of the decision which was taken to relate the prices of petrol products to market prices…” Evidently, a further rise in inflation during July as a result of the full impact of the price revision is also being factored in. Indicating what could be expected, Planning Commission Deputy Chairman Montek Singh Ahluwalia said: “I think there will be an adjustment upward [in inflation] when the fuel price hike gets fed into the July numbers”.
Prime Minister’s Economic Advisory Council member Govinda Rao also felt that the July figures would be slightly higher. “The RBI may raise policy rates by another 25 basis points. Post-July, we could see some dip in inflation as the base effect starts waning,” he said.
Apart from petroleum products, certain manufactured goods such as wood products went up by 5.4 per cent in June.
In food articles, however, the price increase was a marginally 0.20 per cent during the month as cereals, mainly rice and wheat, turned cheaper when compared to the previous month.
Although there is cause for concern, the situation is not alarming as yet.
The Finance Minister expressed confidence that food inflation — the main driver of overall inflation — will soften after kharif season.