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Costlier veggies push inflation to 5 month high

The headline annual inflation rate rose to a five-month high of 5.79% in July as oil import costs and food prices were pushed up by a weaker rupee, with the government and central bank still struggling to stabilise the currency.

business Updated: Aug 14, 2013 15:29 IST

Rising prices of onions and other vegetables pushed inflation to a five-month high of 5.79% in July even as the government and RBI battled to stabilise the rupee.

Inflation based on the Wholesale Price Index (WPI) was at 4.86% in June. In July 2012, it was 7.52%.

The July number is above the Reserve Bank's comfort level of 4-5% inflation. This is the highest level of inflation since February 2013, when it was 7.28%.

As per official data released today, WPI inflation in the food articles category rose to double digits at 11.91%, driven by rising prices of onions, cereals and rice.

The rate of the price increase in food articles, which has a 14.34% share in the WPI basket, was at 9.74% in June. Inflation in food articles has risen for the third straight month.

Onion prices on annual basis more than doubled in July, shooting up by 145%. Vegetables prices went up by 46.59% during the month from 16.47% in June.

Planning Commission Deputy Chairman Montek Singh Ahluwalia said the rise in inflation was mainly on account of depreciation in the currency against the dollar and hoped that as the supply side improves, food inflation would come down.

"With the currency appearing to stabilise, I don't expect this (inflation) to continue. I think if we can get moderation on the food front once the impact of the good monsoon becomes available, I think we will end the year (with inflation) between 5-6%," he said.

The declining value of the rupee has made imports of oil costlier and pushed up fuel and power inflation to 11.31% in July.

The government and the RBI have taken steps to check the widening current account deficit and reduce speculation in the rupee, which has fallen over 15% since April.

With inflation rising in July for the second consecutive month, industry chambers urged the government to remove supply bottlenecks, while analysts see limited scope for interest rate cuts by the RBI.

"We would once again urge the Government to re-double its efforts to ease the bottlenecks in supply chain of agri-commodities. Enhanced production with efficient distribution mechanism would help us tide over the present problem of high food prices," Ficci Secretary General Didar Singh said.

As per the data released today, inflation in manufactured items showed a marginal rise to 2.81% in July from 2.75% in June.

"Even manufacturing prices have remained high due to rising cost pressures triggered by rupee depreciation. RBI is left with limited policy options due to currency risks," Bank of Baroda Chief Economist Rupa Rege Nitsure said.

The non-food articles category, which includes fibre, oilseeds and minerals, saw a decline in inflation to 5.51% from 7.57% in June.

Inflation for May was revised downwards to 4.58% from the provisional estimate of 4.70%.

In its preview of the first-quarter monetary policy last month, the Reserve Bank had said the stronger-than-expected monsoon has not softened food inflation as much as it should have and in particular, vegetable prices have been impacted by weather-driven supply disruptions.

Finance Minister P Chidambaram had earlier said there was a need to improve supply-side constraints to bring down retail inflation.

Data released earlier this week showed retail inflation falling marginally to 9.64% in July, from 9.87% in the previous month.