Food lifts WPI inflation to 23-month high

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Wholesale price inflation accelerated to a 23-month high of 3.6 per cent in July, driven mainly by higher food prices, according to official data.The pace of price gains as measured by the wholesale price index more than doubled in July from 1.62 per cent in June, leaving the Reserve Bank of India even less elbow room to cut benchmark interest rates at its next meeting, according to experts.

Food inflation came in at a blistering 11.8 per cent, the fastest in 31 months and compared with June’s 8.2 per cent. “The spike in the WPI seems to be driven by food inflation which itself has been driven by inflation in the foodgrain and vegetable categories,” said D.K. Srivastava, Chief Policy Advisor, EY India. “One expects that after the beneficial effects of the monsoon are factored in, then this will trend down.”

Within the food category, inflation in foodgrains accelerated to 13.6 per cent in July from 10.9 per cent in June. The fruits and vegetables category saw a whopping 22 per cent increase in prices in July but this could be due to a low base effect because the category saw a contraction of 15 per cent in the year-earlier period.The Consumer Price Index for July also saw inflation accelerating to above 6 per cent, with the food component reaching almost 8 per cent.

“The sowing of most of the major crops is above last year’s acreage and this is a positive for containing food inflation,” said Harshavardhan Neotia, President, FICCI.

Primary articles

Overall, the primary articles segment saw inflation accelerate to 9.4 per cent in July from 5.5 per cent in June. Within this, the non-food category also saw a drastic quickening in the pace of inflation, moving to 9.5 per cent in July from 5.7 per cent in June.

Prices in the fuel and power segment contracted 1 per cent in July, compared with a contraction of 3.6 per cent in June.

Looking deeper, prices in the electricity category shrank for the first time since August 2011, contracting 2.8 per cent in July 2016 compared with a growth of 1 per cent in June.

Inflation in the manufactured goods segment accelerated marginally to 1.8 per cent in July from 1.2 per cent in June. Manufactured food products inflation at 10.2 per cent, was the highest it has been since September 2012.

“Inflation in manufactured products has also risen but we do not see it as a concern at this juncture as global growth weakness is likely to ensure that commodity inflation does not go out of hand,” said Richa Gupta, Senior Economist, Deloitte India. She said supply-side issues in food will continue to hamper efforts at bringing about stability in inflation.

“The likelihood of a rate cut is looking more and more remote in October but it might become feasible in December,” Mr. Srivastava said.