Food, fuel inflation ease in early August

Food, fuel inflation ease in early August

New Delhi: Food and fuel inflation eased in early August, bolstering the government’s hopes that headline inflation would slow at a faster pace and reduce the pressure for further monetary action.

Food prices, which have a weightage of over 15% in the wholesale price index (WPI) -- India’s main inflation gauge -- rose 10.35% on year in the week to 7 August as prices of vegetables, potatoes and onions fell. Food prices had risen 11.4% in the previous week.

Annual fuel prices in the same week rose 12.57%, slower than an annual rise of 12.66% a week ago, government data on Thursday showed. Fuel prices make up little over 14% in the WPI.

Wholesale prices in July rose at a slower-than-expected pace, rising an annual 9.97%, the slowest in last six months. Government officials expect headline inflation to ease to 6% by December on a combination of a strong summer harvest, past monetary measures of the Reserve Bank of India (RBI) and a dampening base effect, which would reduce the need for further monetary action.

Saumitra Chaudhuri, the Planning Commission member in charge of economic development, told Reuters on Tuesday inflation has peaked and would start easing at a faster rate from September.

The central bank, which has raised its main lending rate by 100 basis points (bps) since mid-March and is expected to deliver another hike of at least 25 bps at its next scheduled policy review on 16 September, expects demand-driven pressure to keep inflation high.

However, some analysts expect a sharp drop in industrial output growth in July and the continuing liquidity crunch in the banking system to keep the central bank from hiking rates next month.

The government does not seem to be in favour of tackling inflation at the risk of choking economic growth. Finance minister Pranab Mukherjee said this month rising prices were a cost of rapid expansion of Asia’s third-largest economy.

India’s headline inflation, the highest amongst the G-20 major economies, is a major political headache for the Congress-led government. The country has witnessed street protests and the Opposition had shut down Parliament protesting what it called government’s lack of ability to control prices.