August wholesale inflation at two-year high of 3.74%
Experts, however, attributed the rise in WPI inflation during the month to low base effect saying it was (-)5.06 per cent in August 2015. The wholesale price-based inflation, reflecting the annual rate of price rise, in July stood at 3.55 per cent. WPI inflation, which was in the negative zone from November 2014 to March 2016, has been on an upward trend for seventh straight month. The earlier high in WPI inflation was recorded at 3.74 per cent in August 2014.
However, overall, the food inflation basket showed some moderation with inflation at 8.23 per cent in August, against 11.82 per cent in July as vegetable prices cooled. Inflation in vegetables came down to 0.17 per cent in August, from a spike of 28.05 per cent in July. Pulses inflation continued to rule high at 34.55 per cent in August, according to the Commerce Ministry data. Potato, a daily consumable vegetable, saw the price rise during the month at 66.72 per cent. For onion, it was (-)64.19 per cent. The rate of inflation in sugar was at 35.36 per cent and that for fruits rose by 13.91 per cent during the month. “The pick-up in wholesale inflation was broadly in line with our expectation, with an adverse base effect outweighing the cooling effect of lower food inflation,” ICRA Senior Economist Aditi Nayar said.
Assocham said prices of products like pulses, potato and fibres, which are of national interest, has been rising at industry level but recent concern is sugar which has started to rise at much higher rate which policy makers should address using supply side responses. “Government should take steps to address the structural issues of demand and supply within the industry to maintain the inflation within the target range continuously for at least 6 months,” Assocham said. However, deflationary trend continued in some items like petrol at (-)8.65 per cent and minerals (-)3.44 per cent. The inflation print for manufactured articles read at 2.42 per cent in August, up from 1.82 per cent in July.
ICRA further said core-WPI inflation is expected to inch up further in the coming months and remain in a range of 0.5-2 per cent in the remainder of this fiscal. The WPI inflation for June has been revised upwards at 2.12 per cent, against provisional estimate of 1.62 per cent. “Wholesale inflation has undergone a sizable upward revision of 40-50 basis points for the last four months, which is a source of some concern,” Nayar said.
India Inc fears higher WPI Inflation in coming months
As wholesale prices inched up to a two-year high of 3.74 per cent in August, industry experts anticipate a further rise in coming months, leaving little room for interest rate cut. “WPI inflation is expected to print between 4-4.5 per cent in the remainder of 2016, whereas CPI inflation would range within 4-5 per cent in the same months, closing the wedge between the two metrices,” Senior Economist at ICRA Aditi Nayar said.
The wholesale price-based inflation (WPI), reflecting the annual rate of price rise, rose as pulses and manufactured items showed uptick. It was (-)5.06 per cent in August 2015. “RBI being guided by CPI, which has fallen sharply for August 2016 and reached at 5.05 per cent, may not be in a position to reduce the key interest rate since the fall in CPI is not yet sustained and it may rise above 6 per cent in coming months,” Assocham Secretary General D S Rawat said.
Rawat said the increase in retail inflation may be due to factors like the expected fall in money supply because of FCNR deposits maturing in September 2016, incremental effect of 7th pay commission and effect of policy announcements by central banks of the US, Japan, China and the European Union. Foreign Currency Non-Repatriable (FCNR) account deposits are a Fixed Deposit Foreign Currency account and not a savings account. Deposits in an FCNR account can be made in any of the major global currencies like the US Dollar, UK Pound, Canadian Dollar, Deutsche Mark, Japanese Yen and Euro.
The chamber suggested that the Centre should take steps to address the structural issues of demand and supply within the industry to maintain inflation within the target range continuously for at least 6 months.