Wholesale inflation hits a fourmonth high in August

India’s GDP growth also unexpectedly slowed to 5.7% in the June quarter, the slowest pace in three years, underlining the disruption caused by the uncertainty related to the rollout of GST, even as the Indian economy is struggling to recover from the shock of demonetisation.

RBI, which cut its repo rate by 0.25 percentage points last month, retained its ‘neutral’ policy stance, citing uncertainty on the future trajectory of inflation.

“If states choose to implement salary and allowance increases similar to the centre in the current financial year, headline inflation could rise by an additional estimated 100 basis points above the baseline over 18-24 months. In addition, high frequency indicators suggest that price pressures are building up in vegetables and animal proteins in the near months,” it added.

One basis point is one-hundredth of a percentage point.

The second volume of the Economic Survey 2016-17, presented last month in Parliament, took a contrarian view and maintained that India is undergoing a structural shift toward low inflation, mostly due to changing dynamics in the oil market, which has capped upside risks.

“More recently such shifts seem to have been missed, for example, in the last 14 quarters, inflation has been overestimated by more than 100 bps in six quarters with an average error of 180 bps,” it said.