Food prices also push up India’s annual wholesale inflation
New Delhi, June 14 : With potatoes 60 per cent dearer in bulk markets and pulses costlier by 36 per cent over the past year, India’s annual wholesale inflation rose for the second month in May to its highest levels in nearly two years at 0.79 percent, official data showed on Tuesday.
The annual wholesale price index (WPI) had turned positive in April after staying in the negative territory for the last 17 months. It increased to 0.79 per cent in May from 0.34 per cent in the month before.
Data on WPI released by the Commerce and Industry Ministry further showed that the annual rise in food articles was at a steep 7.88 per cent in May as against 4.23 per cent in April — a build-up of as much as 4.47 per cent in just two months.
On Monday, official data showed that India’s annual retail inflation has shot up to a near two-year high of 5.76 per cent in May from 5.47 per cent, due again to a sharp rise in the prices of food articles, notably pulses, vegetables and sugar.
According to Tuesday’s data, potato prices in wholesale markets have jumped 38.36 per cent between March and May this year, the prices of vegetables are up 19.54 per cent, pulses are dearer by 11.34 per cent and milk is now costlier by 9.39 per cent.
Among the three major groups, the index for fuels (May 2016 over May 2015) fell 6.14 per cent due to a drop of 10.86 per cent in prices of petrol and 5.01 per cent in diesel, while the index for manufacturing products rose 0.91 per cent.
Inflation was one of the reasons why the central bank left its key policy rates and reserve rations unchanged, despite a clamour for cuts from stakeholders due to the successive poor showing by the manufacturing sector.
Now, with the rise in both retail and wholesale inflation, the chances of a near-term rate cut appears even more bleak, going by the indications given by the central bank last week.
“The inflation surprise in the April reading makes the future trajectory of inflation somewhat more uncertain,” Reserve Bank of India Governor Raghuram Rajan had said during the second bi-monthly monetary policy update, while holding back all key policy rates and reserve ratios to control money supply.
The Associated Chambers of Commerce and Industry of India (Assocham) pointed out that rise in WPI was in line with industry’s expectations, as it got some upward push due to the increase in global crude oil prices.
“But policymakers need to check and address through supply-side responses the continuous rise in prices of commodities like pulses, food articles, cereals, wheat and other items of national interest that have been soaring continuously,” said D.S. Rawat, Secretary General of Assocham.
“Though WPI figures may give some relief to manufacturers and producers since earlier it was hampering their pricing power, profitability and limiting their potential to increase capital expenditure.”
Rawat further said that the declining trend in the index of industrial production (IIP) and rising WPI may have a negative impact on the country’s economy in the long run.
Another leading industry chamber Ficci (Federation of Indian Chambers of Commerce and Industry) said that the latest WPI-based inflation edged up on the back of elevated food prices.
“This clearly calls for a more proactive management from the supply side. Several steps have been taken by the government to augment supplies and improve distribution of such items,” said Harshavardhan Neotia, President, Ficci.
“We hope that the situation would be managed well and that inflation will remain within RBI’s indicative trajectory.”
Currently, the central bank has set a target to hold the CPI at five per cent by March 2017.
“Industrial growth, particularly the manufacturing sector, continues to remain under pressure with limited signs of improvement in a few sectors,” Neotia said.
“We need to broad base the growth impulses and this calls for support by way of an accommodative monetary policy.”