WPI inflation rises to 7% in Oct, adding pressure on RBI

New Delhi: India’s wholesale price inflation accelerated to an eight-month high in October, increasing pressure on the central bank to raise policy rates as it was followed by a double-digit rise in retail prices.

 

The Wholesale Price Index (WPI) rose to 7% in October from 6.46% in the previous month, mainly on high prices of manufactured items and food, especially vegetables, official data showed on Thursday.

 

Food prices rose by 18.19% in October from 18.4% the previous month, and fuel prices increased to 10.33% from 9.64%. Wholesale vegetable prices increased 78.4%, spurred by a 278% increase in onion prices. Non-food inflation, consisting of fibres, oil seeds and minerals, increased to 6.79% from 5.17%.

 

Core inflation, which excludes volatile food and fuel prices, inched up to 2.6% from 2.1% in the previous month.

 

For August, the final WPI-based inflation was substantially revised upwards to 6.99% from the provisional 6.1% reported earlier.

 

The government on Tuesday had said retail inflation based on the Consumer Price Index had quickened to 10.09% in October from 9.84% the previous month, mainly on account of higher food prices, while factory output rose to 2% in September after expanding 0.4% in August.

 

The depreciation of the rupee and high vegetable prices have impacted inflation, Citigroup India economists rohini and Anurag jha said in aresearch note on Thursday. 

 

Moderating rural wages and lower increases in the prices of food grain purchased by the government may cool inflation a bit but that might be offset by a weakening rupee, they said. 

 

Analysts expect the Reserve Bank of India (RBI) to again raise repo rates to contain inflation, though industry has been hoping that the central bank will start cutting interest rates to boost economic growth, which fell to a decade’s low of 5% in 2012-13.

 

In its mid-quarter review of the monetary policy on 29 October, the central bank raised its repo rate by 25 basis points, with governor Raghu ram rajan stressing that inflation control will remain a priority for RBI. “It is important to break the spiral of rising price pressures in order to curb the erosion of financial saving and strengthen the foundations of growth,” Rajan had said. One basis point is one-hundredth of a percentage point.

 

In a press conference on Wednesday, Rajan had admitted that food inflation was “worryingly high”, but said he was “somewhat more heartened” by the decline in core consumer price inflation in October, to 8.1% from 8.5% in September. “We will watch the incoming data carefully, especially looking for the effects of the harvest on food prices as well as the second-round effects of fuel price increases and exchange rate depreciation, before we make further decisions on interest rates,” he had said

Despite the first quarter gross domestic product (GDP) coming in at only 4.4%, the government is hopeful that the economy will grow at more than 5% this fiscal year. 

 

But the International Monetary Fund, the World Bank and rating agencies see India’s economy growing at less than 5% in the year to March.

 

With the two measures of inflation (WPI and CPI) more discomforting than expected, another rate hike by the central bank looks inevitable, said d.K. Joshi chief economist at rating agency Crisis ltd.

 

“WPI inflation is higher than expected with food inflation being the primary driver. But worryingly, core inflation is also consistently inching up. Core inflation typically reflects demand pressures. But in the current scenario of weak demand, increase in core inflation can mainly be attributed to companies passing on the higher input costs to consumers,” Joshi said. “Food inflation should come down as a good monsoon may help in correcting prices of vegetables substantially

Rahul kumar Gupta

PGDM,1 st Year.