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HindustanTimes Sun,31 Aug 2014

Inflation at 7-month high, don’t expect loan relief

HT Correspondent, Hindustan Times  New Delhi, October 14, 2013
First Published: 12:26 IST(14/10/2013) | Last Updated: 01:27 IST(15/10/2013)

Skyrocketing onion and vegetable prices and costlier staples such as rice pushed India’s wholesale inflation to a seven-month high in September to 6.46%, while retail inflation quickened 9.84% during the month as rising cost of living, flat income growth and shrinking job opportunities was making getting by get harder for millions of Indians in a festive month.

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The government had hoped food prices will start falling on the back of a good monsoon this year, but cyclone Phailin, which left a trail of destruction along the eastern coast, could wreck a fertile rice-growing belt, where the main summer crop is at a ripening stage.

While wholesale inflation was 6.10% in August, retail inflation was 9.52% during the month.

Besides, high inflation means the Reserve Bank of India (RBI), which will present its credit policy review later this month, could hesitate to cut interest rates, a step needed to boost economic growth.

So, your EMIs are unlikely to fall even as rising prices continue to eat away larger chunks of household incomes and slow economic growth pushes back hopes of decent salary increases.

Ahead of the festival season, high borrowing costs will likely dampen purchases of cars and other consumer goods, which are mostly bought through loans.

For the ruling UPA, the mix of high inflation, falling currency and poor economic growth—India’s economy grew at a four year low of 4.4% in April-June hit by a crippling industrial slowdown--comes at a politically inopportune time -- key state elections are due next month, and national polls in about six months.

Wholesale onion prices grew by 322.94% during September on the back of 244.62% in the previous month, while on country-wide basis wholesale vegetable prices grew 89.37% in September, up from 77.81% in August.

Retail price data broadly mirrored these trends, with shop-end prices of vegetables and cereals soaring sharply by 25% and 12.8% respectively in September, pushing retail food inflation to 11.44% from 11.06% in August.

“The comfort level of inflation is 5 to 6% and if it is higher than 6%, it is uncomfortable. We should keep it below 6%level,” said Montek Singh Ahluwalia, deputy chairperson, planning commission.

“Food inflation is mainly driven by higher prices of cereals and onions. The high price of onions is a short term problem and it is already cooling off in October. The price data for October will be significantly better,” Ahluwalia said.

A dip in cereal and vegetables output pumelled by the cyclone Phailin and floods could further stoke India’s food inflation. Andhra Pradesh and Odisha – two states to be most severely hit – contribute 12% and 7% to the country’s total rice output.

“The elevated wholesale prices are expected to prompt RBI to most probably keep its key interest rates unchanged,” said Madan Sabnavis of Care Ratings in a research report.

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