Millennium Post

Onion price drives inflation to six-month high of 6.1%

High prices of onion and other kitchen items drove the headline inflation to six-month high of 6.1 per cent in August, limiting options for a rate cut by the new RBI governor Raghuram Rajan who is scheduled to announce his maiden monetary policy review
 later this week.

Wholesale price index (WPI) based inflation rose for the third straight month, driven by a whopping 244.62 per cent jump in onion prices on annual basis.

WPI inflation was 5.79 per cent in July. Inflation in the vegetable basket as a whole was 77.81 per cent and in the fruit segment it was 8.17 per cent in August. The food segment as a whole became costlier by 18.8 per cent during the month.

On the positive side, potato prices fell by about 15 per cent, followed by pulses which became cheaper by 14 per cent.In the case of manufactured items, sugar and edible oils became cheaper by 4.2 per cent and 3.86 per cent, respectively. Overall, manufactured items showed a moderate increase of 1.9 per cent during the month on annual basis.

The latest inflation data is going to weigh high on Rajan's mind when he announces the mid-quarter monetary policy on 30 September.The industry has been demanding a cut in key policy rate to spur economic growth.

Prime Minister's Economic Advisory Council (PMEAC) chairman C Rangarajan said inflation, besides forex market, is expected to weigh on the RBI's decision on its policy.

'All that I can say is that the RBI, I believe, will take into account the behaviour of inflation as well as what is happening in the foreign exchange market and take a decision,' he said on the sidelines of an Assocham-organised event here.CII director general Chandrajit Banerjee said: 'The rise in inflation should not come in the way of the policy of forthcoming monetary policy on 20 September, as it is of utmost importance to revive investor sentiment.'

CII said core inflation continues to be stable and inflation related to food items is supply-driven and not due to excess demand.
Another industry chamber FICCI said a key concern now is that rise in food prices continue to contribute strongly to overall inflation.
'It is, therefore, important that structural factors affecting food inflation are addressed on a priority basis,' FICCI's secretary general Didar Singh said.

Yes Bank chief economist Shubhada Rao termed the latest number as 'onion inflation'.Industry chamber PHDCCI suggested the government focus on easing the supply chain bottlenecks.The WPI data showed that the build-up inflation rate in the financial year so far was 3.91 per cent compared to a build-up rate of 4.35 per cent in the corresponding period of the previous year.

On month-on-month basis, inflation in primary articles rose by 3.8 per cent in August.The index for 'Food Article' group rose by 5.3 per cent and that of fruits and vegetables by 13 per cent in August over the previous month.The index for 'minerals' group rose by 0.7 per cent in August on sequential basis.The Prime Minister's Economic Advisory Council has projected the year-end inflation at 5.5 per cent.The consumer price index (CPI) based inflation, popularly known as retail inflation, was 9.52 per cent in August.
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