Wholesale inflation in August rises to 4-month high, courtesy food, fuel prices
New Delhi: India’s wholesale inflation accelerated to a four-month high of 3.24% in August, in line with the trend in retail inflation on the back of rising food and fuel prices, strengthening the case for a pause on interest rates by the Reserve Bank of India (RBI) in its monetary policy review next month.
Data released by the department of industrial policy and promotion (DIPP) showed food inflation quickened to 5.75% in August from 2.15% a month ago, as onion prices rose by 88.5%. Inflation in manufactured items picked up 2.45% in August from 2.18% a month ago.
Fuel inflation rose by 10% as petrol and diesel prices continued to soar on rising crude oil prices and high central and state taxes. Fuel prices have risen to a three-year high. However, petroleum minister Dharmendra Pradhan has ruled out any interventions to check prices as diesel and petrol prices have been decontrolled.
Retail inflation quickened to a five-month high of 3.36% in August as food inflation turned positive after three months of contraction, according to data released by the central statistics office on Tuesday.
“The continued rise in crude oil prices is expected to push up the mineral oils sub-index in the ongoing month. However, the subsequent upside risk posed by crude oil and other fuels is likely to be limited,” said Aditi Nayar, principal economist at ICRA Ltd.
Pankaj Patel, president of industry lobby group Federation of Indian Chambers of Commerce and Industry (Ficci), said in a statement that the spurt in inflation is a matter of concern and he hopes RBI will take a balanced view given the anaemic industrial growth scenario.
“The need for a further cut in interest rates to stimulate demand and growth in the economy cannot be overemphasized. From the perspective of jobs and fresh employment opportunities, all policy levers at the disposal of government and RBI should be utilized even as further steps are taken to augment agri-production and improve the supply side logistics,” Patel added.
India’s industrial production recovered to grow only mildly at 1.2% in July as growth in manufacturing output remained flat with the introduction of goods and services tax (GST) on 1 July, which continued to disrupt production networks.
India’s GDP growth also unexpectedly slowed to 5.7% in the June quarter, the slowest pace in three years, underlining the disruption caused by the uncertainty related to the rollout of GST even as the Indian economy is struggling to recover from the shock of demonetization.
RBI, which cut its repo rate by 0.25 percentage points last month, retained its ‘neutral’ policy stance, citing uncertainty on the future trajectory of inflation. “If states choose to implement salary and allowance increases similar to the centre in the current financial year, headline inflation could rise by an additional estimated 100 basis points above the baseline over 18-24 months. Also, high frequency indicators suggest that price pressures are building up in vegetables and animal proteins in the near months,” it added.
One basis point is one-hundredth of a percentage point.
The second volume of the Economic Survey 2016-17 presented last month in Parliament took a contrarian view and maintained that India is undergoing a structural shift toward low inflation, mostly due to changing dynamics in the oil market, which has capped upside risks.
“More recently such shifts seem to have been missed, for example, in the last 14 quarters, inflation has been overestimated by more than 100 bps in six quarters with an average error of 180 bps,” it said.