Skyrocketing onion and vegetable prices and costlier staples such as rice and wheat pushed India’s wholesale price index (WPI)-based inflation to 4.86% in June, adding to an array of problems for the government battling to steer the country out of a web of economic mess in an election year.
The latest spike in wholesale inflation, which was at a 40-month low of 4.7% in May, has largely been driven by high food prices, which grew at 9.74% in June. Overall on a country-wide average, vegetable prices grew 16.47% in June — up from 4.85% in May — as heavy rains and floods in Uttarakhand and other regions affected crops and disrupted supplies.
Retail price data, which was released last week, broadly mirrored similar trends with shop-end prices of vegetables and cereals soaring in June. India’s retail inflation stood at 9.87% in June, up from 9.31% in May.
A sub-5% WPI inflation is still well within the Reserve Bank of India’s comfort zone, but with high retail inflation that looks good to hit double digits this month, experts reckon that the central bank is unlikely to slash lending costs at its July 30 review meet.
Moreover, the slide in the rupee, which has fallen nearly 13% since May, is likely to knock up prices of almost everything along the value chain, effectively negating gains from a potentially bountiful summer harvest.
“Even though inflation has risen a little bit, WPI seems to be stablising... (but) going ahead there will be impact of rupee depreciation (on prices),” said chairman of Prime Minister’s Economic Advisory Council C Rangarajan.
The rupee is hovering around 60 to a dollar, threatening to blow a bigger hole in household budgets. The currency could continue to fall unless policy steps to boost the economy are outlined soon.
“With the weakening of the rupee, inflation in imported goods may be a concern going ahead. Already, prices of petroleum products have seen an upward revision,” said Naina Lal Kidwai, president of industry chamber Ficci.
On Sunday oil firms announced a Rs. 1.55 per litre (excluding local taxes or value-added tax) increase in petrol prices — the fourth such hike in six weeks.