Pricey burden

Pricey burden

The impact of last month’s diesel price hike is evident on headline inflation which rose to a 10-month high of 7.81 per cent in September from 7.55 per cent in the previous month.

Upward revision of diesel prices raised fuel inflation to 11.9 per cent and the impact on WPI inflation is visible, though that’s not the whole story. Food inflation numbers have fallen to a 7-month low of 7.86 per cent from 9.14 per cent in August, primarily on the back of mostly satisfactory monsoons in the paddy and wheat cultivating states of Punjab, Uttar Pradesh and Maharashtra.

Rising transport and power costs post the diesel and LPG cylinder price hikes of September 13 have not been fully factored into the food inflation numbers. Both fuel and power inflation are set for higher double-digit growth in October as the expenses on transport contracts are likely to manifest themselves following the festival season.

Core inflation (or non-food manufacturing sector inflation) at 5.6 per cent was unchanged in September, though demand side pressures in the economy persist. Higher imported input costs could partially contribute to core inflation though it is a moot point if margin pressures of importing companies are leading to some level of under-reporting of input costs.

The industry’s demand for a cut in RBI policy rates on October 30 would need further consideration in view of the overall inflation rate declining, while going by past trends, the RBI will look to the government building on the gains of the IIP index which showed 2.7 per cent growth in August. However, this is still far from satisfactory, especially when the power sector faces a low production-high capacity scenario. Power production and reducing import dependence on oil are two issues where the government needs to take charge and speed up reforms.

Rising international oil barrel prices continues to pose inflationary pressures. The next round of feared LPG price revisions on October 31 will further hit families who cannot exceed the magic figure of six subsidized cylinders in a year.

While oil marketing companies (OMCs) have confirmed sufficient availability of domestic subsidised and non-domestic commercial LPG cylinders to meet requirements of the ensuing festive season, the inflationary impact of high prices and artificial curbing of demand by the government will skew the demand-supply paradigm making the very exercise of containing headline inflation a pricey burden.