As wholesale prices inched up to a two-year high of 3.74 per cent in August, industry experts anticipate a further rise in coming months, leaving little room for interest rate cut.
“WPI inflation is expected to print between 4-4.5 per cent in the remainder of 2016, whereas CPI inflation would range within 4-5 per cent in the same months, closing the wedge between the two metrices,” Senior Economist at ICRA Aditi Nayar said.
The wholesale price-based inflation (WPI), reflecting the annual rate of price rise, rose as pulses and manufactured items showed uptick. It was (-)5.06 per cent in August 2015.
“RBI being guided by CPI, which has fallen sharply for August 2016 and reached at 5.05 per cent, may not be in a position to reduce the key interest rate since the fall in CPI is not yet sustained and it may rise above 6 per cent in coming months,” Assocham Secretary General D S Rawat said.
Rawat said the increase in retail inflation may be due to factors like the expected fall in money supply because of FCNR deposits maturing in September 2016, incremental effect of 7th pay commission and effect of policy announcements by central banks of the US, Japan, China and the European Union.
Foreign Currency Non-Repatriable (FCNR) account deposits are a Fixed Deposit Foreign Currency account and not a savings account. Deposits in an FCNR account can be made in any of the major global currencies like the US Dollar, UK Pound, Canadian Dollar, Deutsche Mark, Japanese Yen and Euro.
The chamber suggested that the Centre should take steps to address the structural issues of demand and supply within the industry to maintain inflation within the target range continuously for at least 6 months.
Retail inflation eased to a five-month low of 5.05 per cent in August, mainly because of a slower rate of price increase in vegetables as well as food and beverages.
The rate of price growth, based on the consumer price index (CPI), was the lowest since March 2016 when it stood at 4.83 per cent.
Wholesale price index (WPI) inflation in vegetables cooled to 0.17 per cent in August, from a spike of 28.05 per cent in July.
Pulses inflation continued to rule high at 34.55 per cent in August, according to the Commerce Ministry data.