Rise in retail, wholesale inflation dashes rate-cut hopes

Apr 15 2014, 21:42 IST
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SummaryExpensive fruits and vegetables pushed up wholesale and retail inflation rates in March, dashing industry's hopes of a rate cut by the RBI in its forthcoming monetary policy...

Expensive fruits and vegetables pushed up wholesale and retail inflation rates in March, dashing industry's hopes of a rate cut by the RBI in its forthcoming monetary policy review in June.

While wholesale inflation in March rose to a three-month high of 5.7 per cent, retail inflation inched up to 8.31 per cent after softening for three straight months since December.

Although the Reserve Bank of India, which has been refraining from cutting rates because of heightened inflation, may wait for some more time, India Inc wants the central bank to take a view in the backdrop of the slowing economy.

Snapping a declining trend, the wholesale price index (WPI) rose in March due to a spurt in prices of food items such as potato, onion and fruits. Inflation in food items was 9.9 per cent in March against 8.12 per cent in the previous month.

WPI inflation, which had been declining since December, had eased to a nine-month low of 4.68 per cent in February, according to government data released today.

Retail inflation, as measured by the Consumer Price Index (CPI), rose to 8.31 per cent from 8.03 in February, driven by rising prices of fruits and vegetables.

Inflation in the food basket, including beverages, increased to 9.1 per cent in March from 8.57 per cent in the previous month.

"Unless food inflation is brought under control, we could see a lasting impact on the overall growth scenario," Ficci President Sidharth Birla said.

"The central bank must take a more nuanced stand on its reading of the growth-inflation dynamics as we are fast losing ground with regard to performance of the industrial sector. Along with growth of the industrial economy, we also have on stake sufficient employment generation," he added.

The revival of inflation, especially of food prices, calls for "supply-side initiatives to raise agriculture productivity," CII Director General Chandrajit Banerjee said.

These include augmenting investment in agri infrastructure, improving supply side management and encouraging FDI in retail, he said.

Calling for "swift and decisive" policy actions, Banerjee said it would be "unfortunate if the RBI decides to address supply-side created inflation through demand constriction by using interest rate as a tool."

In the monetary policy review on April 1, the Reserve Bank retained the key interest rate, expecting a rise in inflationary expectations. The central bank's next monetary policy review is scheduled on June 3.

Under the WPI, inflation

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