Inflation based on wholesale prices shot up to 39-month high of 6.55 percent in February because of costlier food and fuel items. This is slightly higher than what the street was anticipating.
According to the official data released today, food prices witnessed a sharp rise by 2.69 percent in February as compared to a deceleration by 0.56 per cent in the previous month. Food inflation in the months of October , November, December and January had crashed and it appears that food inflation has bottomed out.
Commenting on this, Rupa Rege Nitsure, L&T Financial Services said, “Everything on the agriculture front is not good as some of the southern states have declared drought.”
Inflation trajectory is hardening due to the shortfall in certain food products and stickiness of prices in services, she said.
As for Reserve Bank of India’s (RBI) outlook, she said it will have to revisit its stance to maintain the neutral stance or move to accommodative.
Nitsure had estimated WPI to be at 6.3 percent. She said the spike in energy and non-energy commodity prices may have been the contributor for the higher inflation.
The Wholesale Price Index-based inflation, reflecting the annual rate of price rise, was at 5.25 percent in January. This was primarily because of sharp rise in rates of cereals, rice and fruits.
The fuel basket also surged by 21.02 percent from 18.14 per cent in January.
The government also revised December inflation rate to 3.68 percent from the previous provisional reporting of 3.39 percent.
Below is the verbatim transcript of Rupa Rege Nitsure’s interview to Latha Venkatesh on CNBC-TV18.
Q: 6.5 percent, what does that mean to you; our range was 5.7 to 6.3 percent, this has come higher than the higher end of our range?
A: Yes, because 6.3 percent was my predication. It is not primarily on account of food inflation because that has a very low weight in wholesale price index (WPI) inflation. It is as you rightly said, the spikes in energy and non-energy commodity prices. If you see month of February, except for beverages, globally all metals and mineral prices have spiked. So, on a year-on-year (YoY) basis, sudden spike in cost put pressures for manufacturing sector definitely had suggested that we would get ugly print for the month of February.
Q: You would attribute this largely to the base effect?
A: Yes, largely to base effect also, but I am also seeing the sequential momentum. To speak about food prices, sequentially the prices of pulses, edible oil and major vegetables like tomatoes, and all, have moderated further. However, as you rightly said in your opening remark, the base effect was quite unfavourable because last year in February we had seen sudden fall in food prices.
Q: Have we seen the last of food price fall and should we prepare for a rise even in the consumer price index (CPI)?
A: Yes, absolutely, because as you rightly said, cereals have a fairly high weight in CPI and everything on agriculture front is not that good because all southern states have declared themselves as drought states this year except for Telangana and some parts of Andhra Pradesh. However, Kerala and Karnataka, they are reeling under the pressures of drought and to a great extent that has damaged paddy output this year.
Q: What is your guess on the CPI number now, that also will trough out I guess, January is 3.2 percent?
A: We may get anywhere between 3.5 percent plus reading. However, I am a bit skeptical because it is a fact that inflation trajectory is hardening because of short fall of certain major food grains and stickiness of the prices of a certain services. However, at the same time, we are seeing a lot of weakness especially in the unorganised segments of the manufacturing sector. So, I think Reserve Bank of India (RBI) will have to give due weightage to that also so far as the stance of monetary policy is concerned.
Q: What from the RBI, a long pause?
A: Yes, long pause, but I think sooner than later they will have to revisit the stance, whether they would like to maintain neutrality mode or take it to accommodative and I think now the most critical variable for that would be the timely onset of monsoon. If that happens, then we can heave a sigh of relief.