WPI inflation at close to 8 per cent is highest this year

WPI inflation at close to 8 per cent is highest this year

Analysts expect upward trend to continue

India’s wholesale inflation moved closer to 8 per cent in September backed by high fuel prices even as government steps to boost supply management kept food prices under check.

The 10-month high print on inflation came on the back of a 14 per cent hike in diesel prices last month. The move was expected to push wholesale price inflation in the subsequent months.

Monday’s official data on inflation showed the WPI inflation at 7.81 per cent. The fuel and power inflation was 11.88 per cent, from 8.32 per cent in August, which translated into a 4 per cent month-on-month hike.

Overall food inflation was at 7.86 per cent against 9.62 per cent in the corresponding period of last year. Inflation of primary articles was 8.77 per cent.

Analysts said, the inflation will keep moving upward in the next couple of months, owing to last month’s diesel price hike having some second-round effect on the manufacturing side. The government also sharply revised July’s inflation print up to 7.52 per cent from 6.87 per cent reported earlier.

The higher inflation print has made the Reserve Bank of India’s job more complicated, although the government hopes that the central bank will give a matching response to its efforts taken on the fiscal side in the past one month.

Finance Minister P Chidambaram too has said that the RBI should take calibrated risks to support the economy following the government moves to contain the fiscal deficit. Given the economic growth has also slowed down considerably, the RBI may take some small steps, economists said. The Indian economy grew 5.5 per cent in the April-June quarter, showing a slight improvement from a nine-year low of 5.3 per cent in the preceding quarter.

The Prime Minister’s Economic Advisory Panel chief C Rangarajan, said the rise in the WPI could largely be attributed to the increase in fuel price. He, however, said that inflation could lower about 7 per cent by March 2013, but that will depend upon how food prices behave from now on till February.

Presently, if RBI goes in for a rate cut in its October 30 monetary policy review, it will stoke inflation. If it keeps rates where they are today, it will check prices from spiralling, but in the long run, the overall economic growth will be affected as high rates prevent further investment.

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