Data released by India's commerce and industry ministry shows the growth of wholesale inflation to a 23 month high on the back of soaring prices of pulses, vegetables, fruit and sugar. The report showed inflations, as measured by the wholesale price index, rose an annual 3.6 per cent in July as compared to 1.6 per cent in the previous month and minus 4 per cent in the corresponding month of the last year.
Food inflation also rose to 11.8 per cent in July as compared to 8.2 per cent in June. Price of pulses shot up 35.8 per cent in July as opposed to 26.6 per cent in the last month. The government revised upwards the inflation rate for May to 1.2 per cent from the previous 0.8 per cent, highlighting the firming up of price pressure. Vegetable prices rose 28 per cent in July compared to last month's 16.9 per cent increase. Fruit prices soared 17.3 per cent (6 per cent in June), while sugar prices shot up 32.3 per cent (26 per cent in June).
The government is hopeful that the robust monsoon rains will help improve supplies and moderate inflationary pressures. The RBI kept interest rates unchanged in its latest monetary policy but pointed to the lurking price pressure. Economists said they expect wholesale inflation to be above 4% in the months ahead. “...This contrasts with the trend in CPI inflation, which likely peaked at 6.07% in July 2016,” said Shubhada Rao, chief economist at Yes Bank. “On the retail front, we continue to expect CPI inflation to broadly meet RBI's projected trajectory, averaging 5.1% for FY17. As such we continue to maintain our call of 25 basis points ease in policy repo rate in the third quarter of FY-17.”
