Wholesale inflation rate rises to 8-month high

Stubbornly high vegetable and onion prices pushed India’s wholesale inflation rate to an eight-month high of 7% in October—the highest in eight months—adding to an array of problems for the government in an election year.

Stubbornly high vegetable and onion prices pushed India’s wholesale inflation rate to an eight-month high of 7% in October—the highest in eight months—adding to an array of problems for the government in an election year.

HT Image

Figures released on Thursday confirmed what most people have been complaining about: how rising food prices and high cost of living have squeezed their household budgets forcing them to make expenditure adjustments.

Food inflation—a useful guide to gauge the impact on household kitchen budgets—rose 18.19% in October compared to the same month last year, marginally lower than the previous months 18.40%.

Vegetable prices leapt by 78.4%. Fuel prices also rose sharply 10.3% in October.

It could get worse amid heightened expectations that the Reserve Bank of India (RBI) will raise its key lending rate to cool inflation. The RBI has raised interest rate twice since September.

“With inflation rising, and the RBI now expecting WPI inflation to be higher than its earlier forecast of 5.5% in 2013-14, a 0.25 percentage point hike in the repo rate ( the rate at which banks borrow from RBI) is likely during the remaining months of the fiscal,” Crisil, a credit rating and research firm said in a research report.

The central bank cut India’s growth forecast to 5% for 2013-14, from its earlier 5.5%. It expects retail inflation to hover around 9% during the current financial year.