WPI inflation rises, rate cut hopes dim

After a four-month respite, the wholesale price inflation in June picked up marginally but came in better than expected at 4.86 per cent. Although the numbers brought some cheer in the market after  the weak IIP data, consumer price inflation and auto sales numbers, the growth in food inflation played spoilsport.

 A shocking rise in onion prices by 114 per cent in June pushed food inflation to 9.74 per cent. Prices of cereals and rice too rose but inflation in non-food manufacturing segment, slowed further to 2.1 percent in June from 2.4 percent a month ago, official data showed.
The rise in WPI inflation on the back of an already high consumer price inflation is going to shape up the Reserve Bank of India’s monetary policy on July 30. 

The RBI left interest rates unchanged last month, after cutting them at each of its previous three policy reviews, citing upside inflationary risks from the rupee's slide.
 The rupee, which touched an all time low of 61.21 to a dollar earlier this month, is fuelling inflation, especially in the prices of petroleum products.

The government and RBI have been taking steps to strengthen rupee, but has so far not yielded much result.

On the slowdown of manufacturing, most of the analysts and policy makers were of the view that it may discourage manufacturers from producing as prices have almost reached in deflationary territory.

Prime Minister’s Economic Advisory Council Chairman C Rangarajan said while lower core inflation is good, it may also be the loss of pricing power on the part of the manufacturers.
 “Going ahead I do not know whether this would be a major factor in terms of the performance of the industrial sector. I think the performance of the industrial sector will depend upon the level of investments, the expectations regarding that as well as the availability of critical inputs like coal, power and so on," he added.

Inflation in fuel and power segment was lower at 7.12 per cent in June as compared to 7.32 per cent in May.

 Reacting on the rise in inflation, India Inc suggested the need to address core issues hampering growth. Ficci President Naina Lal Kidwai said , “There is an urgent need to enhance public investment in agriculture as against subsidies and step up agriculture productivity.”

Assocham said that both the government and the RBI needed to focus on boosting economic growth as it is the only sound solution.

 "The need of the hour is to boost investor sentiment. The upcoming quarterly monetary assessment must take this necessity into account," it said.

According to Yes Bank Knowledge Report, “ Elevated CPI inflation for June in conjunction with rupee weakness may prompt the RBI to stay put in July policy review despite depressed growth outlook. As such, we expect RBI to maintain status quo in July.”

Financial services firm Angel Broking also had similar views. In an update, it said, “In light of these factors, the RBI is likely to maintain a pause as regards its stance on the repo rate in its upcoming policy meeting on July 30, 2013.