The Hindu Business Line : Inflation at 8.75%, hits 7-year high on dearer primary goods

New Delhi, June 13 Inflation surged to an over seven-year high on soaring manufactured product and primary article prices, stoking speculation that the central bank may step in to tighten monetary policy further after this week’s rate hike.

The annual Wholesale Price Index-based inflation rose 8.75 per cent for the week ending May 31, up from 8.24 per cent in the preceding week, according to latest Government data released on Friday. Inflation was measured at 5.09 per cent during the corresponding week last year.

Inflation has been rapidly rising since January 2008 and the current inflation is the highest since the week ended February 10, 2001. The latest inflation estimates, however, do not factor in the retail fuel price hikes earlier this month, which are expected to figure in the data slated to be released next week (for the week ending June 7).

The Reserve Bank of India on Wednesday unexpectedly raised its key lending rate by 25 basis points to 8 per cent to contain inflation expectations, but left all other rates unchanged. It was the first hike in the repo rate in more than a year, but with the impact of costlier petrol and diesel yet to be factored in, analysts pointed to the possibility of more measures in the future.

During the latest reported week, rise in inflation was witnessed across all major heads of the WPI. Inflation in manufactured products went up to 8.77 per cent on a year-on-year basis, up from 7.95 per cent in the previous week, with the iron and steel group, edible oils and dairy products mainly responsible for the rise. Inflation in primary articles also climbed up further to 9.74 per cent during the latest week, up from the year-on-year increase of 9.28 per cent recorded in the week ended May 24, mainly on account of items including milk, cereals and fruits.

Inflation in the fuel group also rose further to 7.86 per cent in the week ended May 31, after remaining steady at 7.79 per cent in the preceding two weeks, with the mineral oils and coal groups showing a surge. With the hike in prices of petrol, diesel and LPG announced by the Government with effect from June 5 likely to be factored in the data to be released next week, a big surge in the fuel index is expected during the next week.

Diesel and LPG together account for 4.91 per cent of the WPI. Also, the base of the WPI of fuel, power, light and lubricants is smaller for the next two months.

Continuing a trend of sharp upward revisions, inflation for the week ended April 5 was revised upwards to 7.71 per cent, up from the provisional estimate of 7.14 per cent.