Inflation dips to 4-mth low of 5.43%, monsoon cause of concern

Written by Agencies | New Delhi | Updated: Jul 15 2014, 00:10am hrs
InflationGovernment will announce the Consumer price inflation data later in the evening.
Inflation receded to four-month low of 5.43 per cent in June, although bleak situation of the South-West monsoon continues to remain a cause for concern.

The Wholesale Price Index based inflation declined in June after touching 5-month high of 6.01 per cent in May. It was 5.16 per cent in June 2013.

"The data has been positive due to favourable statistical base... The news on the monsoon and kharif sowing is not encouraging. It is more deficient in western India which is less irrigated. So it doesn't augur well for the RBI to cut rates going forward," Chief Economist, Bank of Baroda, Rupa Rege-Nitsure said.

WPI inflation in June eased mainly on fall in vegetable, fuel, edible oil, sugar and onion prices. However, the kitchen staple, potato, went up by 45.52 per cent.

Prices of vegetables during the month declined by 5.89 per cent from May, edible oils - 0.75 per cent, sugar - 2.09 per cent. Onion prices were down by 10.7 per cent.

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In the past few months, however, the prices of onion and potato had been going up. The government has taken various steps including imposing minimum export price of USD 500 a tonne on onion and USD 450 tonne on potatoes to improve domestic supply.

It has also put a stock holding limit on these items and has decided to release 50 lakh tonne of rice in open market to prevent price rise due to poor monsoon.

"The moderation in inflation together with the rebound in industrial production as per the recently released data, provides a positive signal that the structural bottlenecks afflicting the economy could be gradually showing signs of receding and green shoots of recovery could be around the corner," industry body CII said in a statement.

Among others items that became expensive in June include include fruits (up 21.40 per cent), milk (10.82 per cent), egg, meat and fish (10.27 per cent) and rice (10.24 per cent).

Food inflation in June was down at 8.14 per cent from 9.5 per cent in May. However, it is likely to remain a cause for concern for the government given the patchy monsoon so far.

Inflation in the fuel and power category, meanwhile, was down at 9.04 per cent from the previous month.

Among other items that witnessed fall in prices in June include cereals at 5.33 per cent. But, prices of pulses became expensive at 1.78 per cent, according to an official release.

In the non-food articles category, the rate of price rise during the month was slower at 3.49 per cent.

Among others, prices of fuel and power grew at a slower pace of 9.04 per cent, as against 10.53 per cent in May. Beverages, tobacco & tobacco products prices rose to 8.64 per cent, from 8.45 per cent. Prices of aerated drinks and tobacco products have gone up.

In other items in the manufactured category, cotton textiles price rose to 8.31 per cent, though the rate of price rise for man-made textiles was slower at 5.54 per cent.

The prices of cement and lime declined at 4.45 per cent and for basic metals alloys and metal product inflation was down at 2.83 per cent.

Industry body Assocham said: "When potatoes and tomatoes grab headlines, they limit the policy space both with the Reserve Bank and the government to really go for bold measures. So, very effective and quick central intervention is required with the help of the states to tame the prices of essential commodities whatever it takes, or else bold reforms will remain non-starters."

The WPI inflation for April was revised upwards at 5.55 per cent, from 5.20 per cent provisionally.

India Inc cheers dip in June inflation

Moderation in inflation for the month of June is an outcome of recent measures like crackdown on hoarders taken by the Narendra Modi-led government, and could be an indication of economic recovery being round the corner, India Inc today said.

Industry bodies called for implementation of measures announced in the Budget to arrest inflation, saying these would pave the way for a stable inflation regime.

"The moderation in inflation together with the rebound in industrial production provides a positive signal that the structural bottlenecks afflicting the economy could be gradually showing signs of receding and green shoots of recovery may be around the corner," said CII Director General Chandrajit Banerjee.

"The Budget has provided a bold and positive thrust to agriculture. It is hoped that the measures announced in the budget for agriculture would be implemented on the ground which would address the supply side bottlenecks and pave the way for stable inflation regime for food products," he added.

After rising to a five-month high in May, inflation dipped to 5.43 per cent in June mainly on account of decline in prices of food items and vegetables with the exception of potato and onion.

"We appreciate the measures undertaken by the government to check hoarding and facilitating the supply chain in various essential commodities," PHD Chamber of Commerce President Sharad Jaipuria said.

"Announcements made in the Budget to improve agriculture infrastructure would go a long way to facilitate farm produce to deliver at consumers' doorsteps," he added.

As per the Wholesale Price Index (WPI) inflation, prices of vegetables as a category declined by 5.89 per cent during the month, while that of potato and onion soared by 42.51 per cent and 10.70 per cent respectively in the wholesale market.

"After a set of focused measures undertaken by government last month to contain food inflation, budget announcements regarding establishment of a Price Stabilisation Fund and a commitment by Centre to work closely with states to re-orient their respective APMCs (Agriculture Produce Market Committee) are reassuring," Ficci President Sidharth Birla said.

However, Assocham President Rana Kapoor said the rise in prices of items used by the common man such as fruits, potato, rice and milk are worrisome.

"When potatoes and tomatoes grab headlines, they limit the policy space both with the Reserve Bank and the government to really go for bold measures. So, very effective and quick Central intervention is required with the help of the states to tame the prices of essential commodities, else bold reforms will remain non-starter," Kapoor said.

Food items that became costlier in June include fruits (up 21.40 per cent), followed by milk (10.82 per cent), egg, meat and fish (10.27 per cent) and rice (10.2 per cent).

The government has been taking steps to control prices of kitchen items like onions and potatoes.

Wholesale price inflation eased to a four-month low

(Reuters) India's wholesale price inflation eased to a four-month low in June after the new government curbed farm exports, but a growing risk that drought will shrivel summer crops could encourage the central bank to keep interest rates on hold.

Wholesale prices rose 5.43 percent year-on-year last month, their slowest pace since February, compared with a 5.80 percent annual rise forecast by economists in a Reuters poll. In May, prices rose 6.01 percent from a year earlier.

Prime Minister Narendra Modi, elected in May amid anger over persistently high inflation, particularly food inflation, has ordered a crackdown on hoarding to hold down food prices and set limits on the export of staples, such as onions and potatoes.

While those measures helped cool food inflation to 8.14 percent in June from 9.50 percent the previous month, vegetable prices still recorded a double-digit gain during the month.

Adding to inflationary worries are prospects of a first drought in five years and turmoil in Iraq, which have increased the risk of a run-up in food and fuel prices.

Weak rainfall in India since the monsoon season started last month has already driven up prices of basic food items, such as milk, potatoes and tomatoes and could further delay a decision by the Reserve Bank of India (RBI) to cut interest rates and ease the flow of credit to the economy.

"We continue to remain cautious on the (inflation) trajectory given the scanty rainfalls witnessed across different parts of the country," said Upasna Bhardwaj, an economist at ING Vysya Bank in Mumbai.

"At the same time, pick-up in demand is further likely to keep the core prices under pressure leaving no room for RBI to ease monetary policy at least through this year."

RBI Governor Raghuram Rajan held benchmark interest rates at 8 percent at the June policy meeting. He has raised rates three times since taking charge last September. The next policy review is due on August. 5.

Last week, Rajan said the central bank was "determined" to make sure consumer inflation, which it tracks to set lending rates, follows a "glide path" lower.

Economists in a Reuters poll forecast that consumer price inflation probably eased to 7.95 percent last month, down from 8.28 percent in May. The government will release the consumer price data at 1200 GMT.

A flare-up in global crude prices also runs the risk of aggravating India's inflationary woes as the country imports nearly 80 percent of its oil.

Brent crude bounced off of three-month lows on Monday to stand above $106 a barrel on fears of supply disruptions amid new and continuing violence in Libya and Iraq.