Inflation at its highest in 5 months

Unseasonal rain hits govt plans to check price rise

Inflation at its highest in 5 months

The economy does not seem to be swaying to the Modi government’s “achhe din” tune, as the latest official figures indicate that the prices of essential commodities and food items have risen the sharpest in the last five months.

The wholesale price inflation in May touched 6.01 per cent as against 5.3 per cent in the previous month, negating the positive trend depicted by consumer prices, the data for which was released last month.

Rising prices of vegetables, fruit and cereals, pushed inflation to a five-month high in May. 

The likelihood of sub-normal monsoon and political tension in Iraq are expected to further worsen the situation.

According to data released by the Commerce Ministry, inflation of food articles showed an uptick at 9.50 per cent in May versus 8.64 per cent in April. 

Vegetable prices surged 6.7 per cent in the month, with potatoes seeing a whopping 19 per cent rise. 

Onion prices, which were benign last month, rose 9 per cent in May. 

Unseasonal rainfall and hailstorms in March pushed up the prices of many vegetables in parts of the country.

The non-food manufactured products inflation, which is a proxy for core inflation, also inched up to 3.8 per cent in May from 3.4 per cent the previous month.

Primary articles inflation rose to 8.58 per cent in May from 7.06 per cent in April. 

Meanwhile, fuel and power inflation rose to 10.53 per cent in May from 8.93 per cent in April as prices of electricity usage in farms and railway traction rose by 3 per cent coupled with a 1 per cent rise in high-speed diesel.

Throwing a spanner in Prime Minister Narendra Modi’s battle against the price monster, the Commerce Ministry revised the inflation rate for March to 6 per cent from the provisional estimate of 5.7 per cent. 

Meanwhile, Modi held a meeting last week to review the country’s contingency plan to deal with the risks of a poor monsoon. Officials are considering giving subsidised diesel and cheaper loans to farmers.

The persistent stickiness in inflation has also dimmed the chances of an interest rate cut in the next policy review by the Reserve Bank of India (RBI). In its second bi-monthly monetary policy statement earlier this month, the RBI had said a faster-than-anticipated fall in inflation can only provide headroom for easing rates. 

The RBI is aiming at a glide path of 8 per cent consumer price inflation by January 2015 and 6 per cent by January 2016. Although the RBI is closely watching the CPI-led inflation as a nominal anchor, WPI data points play an equally important role while formulating the monetary policy.

Concerned over the rise in food inflation, industry chamber CII said the government should implement the APMC Act, develop advanced supply chains, rationalise subsidies, augment investment in agri-infrastructure and encourage FDI in retail.

Assocham insisted on correcting supply chains. “Supply chains are presently very long with numerous middlemen, a number of whom need to be shortened by connecting farmers directly to organised processors, retailers and exporters,” it said. Ficci said it expected to see quick action from the government on food inflation.

Finance Minister Arun Jaitley said, “The government is seized by the matter and is committed to ease supply side constraints. Rise in prices could be because of withholding of stocks on account of apprehensions of weak monsoon,” he said on Facebook. He asked the state governments to ensure speculative hoarding is discouraged. 

The market reacted negatively soon after inflation data was released. While the Sensex lost 100 points only to regain later in the day, the rupee breached the 60-mark to end at a six-week low of 60.16 to a dollars.
According to Jaitley, “The slight instability in rupee could be because of Iraq oil shocks and global fear of oil price rise”.

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