Even though RBI focuses largely on the CPI inflation, the recent rise in wholesale based inflation highlights the pressure on prices in the economy. This, as a result, leads to whether central bank will hike rates or not. The inflation based on wholesale prices rose to 4-year high of 5.77 percent. The recent data released last week showed retail inflation rose to five month high of 5 percent in June. “The sharper than expected uptick in the WPI inflation in June 2018 reinforces our expectation of a likely repo rate hike at the next MPC meeting in August 2018,” Aditi Nayar of ICRA said.
However, according to industry rise in the price of essential commodities will cut chances of any rate cut by the RBI. “We are hopeful that headline inflation will be under the f RBI 4% +- 2 per cent in the coming times,” PTI reported citing PHD Chamber President Anil Khaitan.
The next meeting of the RBI’s interest rate fixing panel is July 30 to August 1.
The WPI inflation for April 2018 has been revised upwards to 3.62 percent compared with the provisional estimate of 3.18 percent. There has been a sustained increase in WPI inflation since the start of the current fiscal. WPI inflation has risen by 2.2 percent since April 2018.
Since December 2013, inflation is at its highest level when it was at 5.9 per cent. CPI inflation, which the Reserve Bank of India (RBI) takes into account while formulating its monetary policy, had touched a 5-month high of 5 per cent in June. RBI targets to keep inflation at 4 percent, (+/- 2 percent). Any rise beyond this comfort zone will put pressure on the central bank to hike rates.
According to the latest WPI data, inflation in food articles stood at 1.80 percent in June, compared to 1.60 percent in the preceding month. Inflation in vegetables jumped to 8.12 percent last month, from 2.51 percent in the previous month.