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India’s wholesale price index(WPI)-based inflation accelerated to 11.39% in August after easing for two consecutive months, as growth in prices of manufactured items gained pace.

Data released by the industry department on Tuesday showed food inflation contracted 1.29% in August while fuel inflation and manufactured products inflation rose to 26.09% and 11.39%, respectively during the same month.

In August, most food items contracted except pulses (9.41%) and onion (62.78%). In manufactured products, food products (12.59%), textiles (17%), chemicals (12.11%), basic metals (27.51%) drove the overall inflation, signalling regaining of pricing power by producers with the economy gaining pace.

Madan Sabnavis, chief economist at Care Ratings, said satisfactory monsoons, good kharif sowing season and easing of supply side pressures would soothe inflation over the coming months to some extent. “Volatile prices in the international markets for crude oil and upward-bound prices of edible oils and metal products would result in higher wholesale inflation given India’s position as a price taker for most of these commodities," he added.

Gaura Sen Gupta, economist at IDFC First Bank said elevated core WPI inflation at 11.2% implies that cost push pressures are gradually seeping into manufactured goods prices. “This is likely to keep core CPI inflation elevated despite presence of excess capacity. Another potential source of upward pressure will be services inflation, which is expected to pick up in Q4FY22, as consumption expenditure rises," she added.

Data released on Monday showed retail inflation eased in August to a four-month low at 5.3% on the back of softening food prices and a favourable base effect, which may enable the central bank to keep interest rates low amid nascent economic recovery.

The Reserve Bank of India (RBI) last month raised the inflation forecast for this fiscal to an average of 5.7%, higher than the earlier forecast of 5.1%, noting that the current trend can be looked through as it is driven by “exogenous and largely temporary supply shocks".

The finance ministry in its latest Monthly Economic Review released last week said softening of inflationary pressures to within the envisaged trajectory and encouraging trends in credit growth bode well for revival of consumer and business sentiments in the economy.

The central bank kept interest rates on hold for the seventh straight time to support the economy reeling from the pandemic, even as a split appeared among monetary panel members over retaining the easy-money policy amid an inflation surge. The monetary policy committee (MPC) in August kept the repo rate or the rate at which banks borrow from RBI, unchanged at 4%.

Despite the spike in inflation, growth continues to be a priority for the central bank. RBI retained the growth forecast for this fiscal at 9.5% amid fears of a third wave of the pandemic.

 

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