Food prices drive WPI inflation to 3-month high

K.R. Srivats
Comment   ·   print   ·  
Given the higher sequential WPI inflation in June and the sharp slide in the rupee, the RBI is unlikely to cut the policy rate on July 30.
Given the higher sequential WPI inflation in June and the sharp slide in the rupee, the RBI is unlikely to cut the policy rate on July 30.

The wholesale price index (WPI)-based inflation rose to a three-month high to 4.86 per cent in June, diminishing scope for a policy rate cut by the RBI on July 30.

The headline inflation print for June 2013 was higher than the 4.70 per cent recorded in May.

Core inflation eased to a 42-month low of 2.15 per cent as compared to 2.35 per cent in May.

The WPI inflation in June reversed the declining trend observed since February 2013 rising to 4.86 per cent on account of spurt in food prices and pass through in fuel prices due to impact of rupee depreciation.

Food inflation rose to 9.74 per cent in June from 8.25 per cent in the previous month.

Food inflation was mainly fuelled by spurt in prices of vegetables (16.47 per cent), onions (114 per cent), rice (19.11 per cent ) and cereals (17.18 per cent).

Reacting to the WPI number for June, Prime Minister’s Economic Advisory Council (PMEAC) Chairman C. Rangarajan said although inflation has risen a little bit, WPI seems to be stabilising.

But going forward, there will be impact of rupee depreciation, Rangarajan said, adding that RBI will have to face a difficult choice in the policy review on July 30.

Elevated Consumer Price Index (CPI) inflation for June in conjunction with rupee weakness may prompt RBI to stay put in July policy review despite depressed growth outlook, said a YES Bank knowledge report.

CPI inflation for June came in at 9.87 per cent, higher than 9.31 per cent in the previous month.

“As such we expect RBI to maintain status quo in the July policy review,” the report added.

The surprise element in today’s WPI inflation was that most of the import sensitive items within the WPI basket eased sequentially despite sharp depreciation of rupee.

This possibly reflected the lagged adjustment to prices, accompanied by weakening pricing power, said the YES Bank report.

(This article was published on July 15, 2013)
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