India Inc nervous as May data seen as party spoiler

Wholesale price index (WPI)-based inflation touched a five-month high of 6.01 per cent in May, driven by a spike in food, fuel and manufactured product prices.

This was higher than the 4.58 per cent recorded in same month last year and the 5.2 per cent logged in April. While manufactured products inflation hit a 13-month high at 3.55 per cent in May against 3.15 per cent in the previous month, fuel and power group inflation stood at 10.53 per cent against 8.93 per cent.

Rising prices of food items pushed inflation up further. Potato prices were up 31 per cent, rice rose 13 per cent and fruits prices surged 19 per cent in May. High-speed diesel prices rose 14 per cent and petrol costing 12 per cent also added to inflation.

The unexpected rise in WPI inflation in May was contrary to the softening trend seen in the consumer price index (CPI)-based, or retail, inflation. Although the Reserve Bank of India is closely watching CPI-based inflation as a nominal anchor, the central bank would do well not to ignore the latest WPI data, say economists.

Many economists feel the RBI was unlikely to go in for any policy rate cuts anytime soon given the inflation situation. Chandrajit Banerjee, Director-General, Confederation of Indian Industry, said the spike in inflation was a cause for concern, adding that tackling food inflation should assume centre stage to bring growth back to the economy.

‘Cause for concern’

Assocham Secretary-General DS Rawat said the role of State Governments was crucial while the Prime Minister’s Office itself should monitor the situation since inflation was the biggest roadblock for economic growth.

Federation of Indian Chambers of Commerce and Industry President Sidharth Birla noted that upside risks continued, as food and fuel were key drivers of inflation. “The sub-par monsoon outlook for this year could put pressure on food prices going ahead,” he added.

(This article was published on June 16, 2014)
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