Onions, diesel prices hold growth plans hostage

The sharpest increase was witnessed in case of onion prices which jumped by 323 per cent year on year in September. The price of vegetables in general rose by 89.37 per cent. Fruits too were costlier by 13.54 per cent year-on-year during the month. According to analysts, the Centre’s policy of raising diesel prices at regular intervals till subisidies for this key energy input are totally eliminated too has stoked the inflation fire.

The RBI is scheduled to unveil its second quarter monetary policy review on 29 October and high inflation and slow economic growth may make it more challenging for governor Raghuram Rajan. The growth in June quarter had hit a four-year low. 

Rajan has repeatedly said that he was focused on price stability, which he believes is essential for raising the rate of growth. The bad news on inflation followed disappointing industrial output numbers announced on Friday. Output grew a much-slower-than expected 0.6 percent in August, hurt by weak investment and consumer demand, dashing hopes of an economic revival by the end of the year.

As per data released by the government on Monday, the food inflation stood at 18.40 per cent in September over the same month last year. The food prices had shot up 18.18 per cent in the previous month. However, there was decline in prices of egg, meat, fish and manufactured food items like beverages and tobacco products. Overall, inflation in manufactured items showed a moderate increase of 2.03 per cent during the month on annual basis.

The other factors which may have affected inflationary trends are the falling value of rupee in the international market and its effect on the price of import of crude oil. However, stabilisation of rupee and a good monsoon this season will bring down inflationary trend in food prices but cost of imports would remain high as the rupee by year-end would still be down around 10 percent against the dollar.