Spike in vegetable prices pushes inflation to 0.79% in May

A double-digit spike in vegetable prices pushed the wholesale price-based inflation to 0.79% in May, reports PTI. With the firming up of both wholesale and retail inflation the Reserve Bank of India may delay the interest rate cut despite a sluggish industrial output. WPI-based inflation in April was at 0.34% and in March it was -0.45%, while it stood at -2.2% in May last year.

ADOUBLE-digit spike in vegetable prices pushed the wholesale price-based inflation to 0.79% in May, prompting the industry to demand policy action for addressing supply side constraints.

With the fir ming up of both wholesale and retail inflation, the Reserve Bank may delay the interest rate cut despite a sluggish industrial output.

The April WPI-based inflation was at 0.34% and in March it was (-)0.45% while it stood at (-)2.20% in May last year.

Inflation in vegetables stood at 12.94%, a sharp rise from 2.21%, a month earlier. Pulses inflation remained stubbor n at 35.56%.

Food inflation rose to 7.88% in May as against 4.23% in April, gover nment data showed.

“Policymakers need to address through supply side responses the continuous rise in prices of commodities like pulses, food articles, cereals, wheat and other items,” Assocham secretary general D S Rawat said.

Experts said a favourable base effect and a good monsoon would lead to some dip in wholesale food inflation in the immediate ter m.

“The trajectory of the WPI inflation would be shaped by global commodity price movements. If crude oil prices sustain at current levels, average WPI inflation is likely to exceed 3% this fiscal,” ICRA senior economist Aditi Nayar said.

As per the data, manufactured products inflation too inched up to 0.91% from 0.71% in April. Fuel and power inflation was (-)6.14% in May.

The hardening of WPI food inflation follows the trend of retail inflation, released on Monday. RBI mainly takes into account retail inflation while formulating monetary policy.

Retail inflation touched a 21-month high of 5.76% in May mainly due to rising prices of food items. Industrial output contracted by 0.8% in April, the first decline in three months, due to drastic fall in capital goods production and manufacturing activities.

Assocham said the declining trend in IIP and rising WPI may have negative impact in the long run since it states that prices may have risen due to a cut in supply.

The hardening of inflation could further dent the chances of an interest rate cut by the apex bank in its policy review in the months ahead.

In its policy review earlier this month, RBI had retained January 2017 retail inflation target at 5%, though with an upward bias on account of firming of oil prices and implementation of 7th Pay Commission recommendations.