Skyrocketing onion and vegetable prices and costlier staples such as rice pushed India’s wholesale inflation to a six-month high of 6.10% in August against 5.79% in July and 8.01% in August 2012, data released on Monday revealed.
High inflation means the Reserve Bank of India, which will present its mid-quarter credit policy review on Friday, 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 comes at a politically inopportune time -- key state elections are due at the end of the year, and national polls in eight months.
The spike in wholesale inflation has largely been driven by high food prices, which grew at 18.18% in August compared to 11.91% in July.
Country-wide, vegetable prices grew 77.81% in August, up from 46.59% in July, as heavy rains in south India affected onion crops and disrupted supplies.
Retail price data, which was released last week, broadly mirrored these trends, with shop-end prices of vegetables and cereals soaring sharply in July by 26.28% and 13.65%, respectively. India’s retail inflation stood at 9.52% in August, marginally lower than 9.64% in the previous month.
The government hopes food prices will start falling on the back of a good monsoon this year.
“Over the next few months food inflation will start coming down because of good monsoon and that would have an impact on other things,” C Rangarajan, chairman of Prime Minister’s Economic Advisory Council (PMEAC) said.
“The key inflationary wild card remains a potential hike in fuel prices. A near 10% hike in diesel prices to ease its oil subsidy burden, which, if approved, would add around 0.5 percentage points to wholesale inflation,” Mole Hau, of BNP Paribas, said in a research report.