Food prices bite, pain to worsen as weak Rs stings
Skyrocketing onion and vegetable prices and costlier staples such as rice and wheat pushed India's WPI, adding to an array of problems for the government battling to the steer the country out of a web of economic mess in an election year. HT reports. Why you should worry | Rupee still undervalued?business Updated: Jul 16, 2013 08:42 IST
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 the steer the country out of a web of economic mess in an election year.
The latest spike in WPI inflation, which was at a 40-month low of 4.7% in May, has largely been driven by high food prices that grew at 9.74% in June compared to 8.25% in May.
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 crop and disrupted supplies.
Late on Monday, the Reserve Bank of India moved in to check speculation in the currency market and fixed a daily limit on how much banks can borrow from the central bank - 1% of banks' deposit base or Rs 75,000 crore, for the entire banking system. If a bank requires more funds, it can borrow emergency money using the marginal standing facility (MSF) at sharply costlier 10.25% from 8.25% earlier.
Higher prices have hurt family budgets hard, especially at a time when firms, squeezed by costly input and borrowing costs, have offered meagre salary hikes and are holding back expansion and hiring.
"Earlier we used to budget for a month. Now we have to revise the budget almost every day," said K Ratna, a housewife from Chennai.
The sharp slide in the rupee, which has fallen nearly 13% since May, is likely to knock up prices of almost everything from farm to fork, effectively negating gains from a potentially bountiful summer harvest.
The rupee is hovering around 60 to a dollar and has dashed hopes that RBI will make loans cheaper.
RBI governor D Subbarao said the central bank will take into account the inflation numbers while deciding on a rate cut in its July 30 meeting.
"Of course we will take into account inflation numbers. Beyond that I have no comment," Subbarao told reporters after a meeting with finance minister P Chidambaram.
Chidambaram met Prime Minister Manmohan Singh and Subbarao to discuss measures to arrest the rupee's fall and reverse the economic slowdown.
The central bank will also sell government bonds worth Rs 2,000 crore in the secondary market to suck out liquidity.
In June, onion prices grew by 114% during the month, while egg, meat and fish prices grew 12.23%-- up from 97.4% and 11.21% respectively in May.
Rice and wheat prices also grew jumped 19.11% and 13.83% in June compared to 18.48% and 12.65% growth in May.
Retail price data, which was released last week, broadly mirrored similar trends with shop-end prices of vegetables and cereals soaring sharply in June. India's retail inflation stood at 9.87% in June, up from 9.31% in May.