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Inflation up at 4.86%, pain ahead

Your EMIs may remain high for some time as high wholesale inflation dents RBI’s elbow room to cut rates . India’s wholesale price index- based inflation inched up to 4.86% in June from 4.7% in May. HT reports.

business Updated: Jul 15, 2013 22:42 IST
HT Correspondent
HT Correspondent
Hindustan Times

India’s wholesale price index (WPI)-based inflation, the country’s main gauge for economy-wide price movements, inched up to 4.86% in June from 4.7% in May, reversing a four-month falling trend on higher food prices such as vegetables that have become costlier.

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 in its July 30 review meet. So your equated monthly installments (EMIs) may remain high for some more time.

In addition, the sharp slide in the rupee, which has fallen nearly 13% since May, will fan inflation further by making imported goods such as crude oil costlier.

“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.

Consumer price index (CPI)-based inflation — a more realistic index because it measures shop-end prices — grew 9.87% in June from 9.31% in the previous month on costlier vegetables and food items.

“As long as CPI inflation remains close to double digits and the balance of payment is at risk, we expect the RBI to remain on hold,” said Sonal Varma, economist at research firm Nomura.

India’s factory output — the closest approximation to measure business and investment activity — contracted 1.6% in May, while exports contracted by 4.6% in June on shrinking shipment orders from Europe that is hit by sputtering growth.

First Published: Jul 15, 2013 21:58 IST