Wholesale price index (WPI) inflation for the month of July soared to a two-year high of 3.55% versus 1.62% in June. This is in line with the CPI inflation, which also shot up to a two-year high of 6.07%. The build up inflation rate in the financial year so far stands at 4.91% as compared to 0.85% in the corresponding period of the previous year. May WPI inflation was revised to 1.24% versus a provisional number of 0.79%. The WPI primary articles inflation was reported at 9.38% versus 5.50% in June. Food articles inflation rose sharply at 11.82% versus 8.18% in June. Fuel and power group inflation stood at (-)1% versus (-)3.62% in June. Manufactured products inflation came in at 1.82% versus 1.17% in June.
However, inflation may have hit a two-year high, but analysts and economists believe that there is no cause for alarm. It is widely expected that inflation will moderate in the coming months on the back of good monsoon. Crisil is of the view that increase in CPI inflation is transitory. The research house says that a normal monsoon and proactive steps taken by the government to manage food supply will rein in food inflation this fiscal.
A few weeks ago, the government formally adopted a CPI target of 4%; plus or minus 2% for the period between now and March 31, 2021, sticking to an agreement signed with the Reserve Bank of India (RBI) in February 2015. Under an agreement between the government and the RBI signed in February 2015, the target of 4+/-2% has already been pursued since FY16, while the RBI comfortably achieved its internal retail inflation target of 5.8% for January 2016.