Costlier onion, veggies push inflation to 5-mth high of 5.79 pct

Written by PTI | New Delhi | Updated: Aug 14 2013, 21:28pm hrs
Indian EconomyInflation based on WPI had stood at 4.86 per cent in June. (AP)
Rising prices of onions and other vegetables pushed inflation to a five-month high of 5.79 per cent 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 per cent in June. In July 2012, it was 7.52 per cent.

Inflation drops to 4.89% in April, lowest since Nov 2009

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

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

The rate of the price increase in food articles, which has a 14.34 per cent share in the WPI basket, was at 9.74 per cent 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 per cent. Vegetables prices went up by 46.59 per cent during the month from 16.47 per cent 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 and 6 per cent," he said.

The declining value of the rupee has made imports of oil costlier and pushed up fuel and power inflation to 11.31 per cent 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 per cent 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 per cent in July from 2.75 per cent 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 per cent from 7.57 per cent in June.

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

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 per cent in July, from 9.87 per cent in the previous month.

Instant View: India headline inflation accelerates to 5.79 pct in July


India's headline inflation accelerated to 5.79 percent in July, the fastest pace in five months, mainly driven by higher food prices and costlier imports as the rupee fell to a record low, government data showed on Wednesday.

July's reading was higher than the 5 percent rate estimated by analysts in a Reuters poll.

The wholesale price index -- India's main inflation measure -- rose an annual 4.86 percent in June.


"No doubt that the July print for headline inflation is very ugly with the major contributors being cereals, vegetables and fuel and power items.

"Despite an acute slowdown in domestic demand, the manufacturing prices have remained elevated due to rising input costs on account of massive depreciation of rupee.

"Policy options before the RBI are extremely limited even if the growth-inflation dynamics has worsened considerably.

"The Central Bank's focus will remain on currency and financial markets stability even if that means a further risk to growth. In all probability, the growth in FY14 will be in the band of 4.8 percent to 5.0 percent indicating a weaker year than FY13."


"Although today's data is much stronger than expected, it doesn't change the view on monetary policy."

"Rupee's fall and high retail inflation had virtually left no room for further monetary easing.

"June's IIP data, high CPI and WPI inflation will maintain pressure on the rupee at least in the short-run."


"Seasonal factors and heavy rainfall have contributed to the higher inflation. Some of the agricultural prices have gone up on the continued rise in diesel prices.

"Even without this inflation figure, India's central bank doesn't have much scope as the rupee is near record lows to the dollar. It's a tough time for economy and markets."


"Imported inflation because of the depreciation of currency, alongside onion prices, are impacting. This clearly suggests that Reserve bank of India will have less flexibility as far as action of rates are concerned."


"The sharper-than-expected jump in the WPI inflation lends credence to the central bank's cautious rhetoric.

"Despite timely rains, supply disruptions translated into higher food prices, with a double-digit rise after a four-month hiatus. Uptick in international fuel prices, coal costs and stark rupee depreciation fed into the fuel component.

"Underlying risks to price pressures and need to prioritise financial, along with rupee, stability, backs the case for status quo on rates.

"Hence the assumption that the change in guard at the RBI will mean a shift to looser policy stance appears out of place, with the broader macroeconomic backdrop to keep the new entrant on a cautious footing in the next few quarters."


"The data is pretty bad. Both food and fuel have surprised on the upside. It seems that the falling rupee is taking a toll via imported inflation. Corporates will have to pass on the high input costs to customers.

"Long-end yields are also going up, which will push up the government's cost of borrowing. The central bank's steps are here to stay, and I do not rule out a rate hike if the rupee remains weak."