NEW DELHI: Rising prices of onions and other vegetables pushed inflation to a five-month high of 5.79 per cent in July even as the government and RBI battled to stabilize the rupee.
Inflation based on the Wholesale Price Index (WPI) was at 4.86 per cent in June. In July 2012, it was 7.52 per cent.
The July number is above the Reserve Bank’s comfort level of 4-5 per cent inflation. This is the highest level of inflation since February 2013, when it was 7.28 per cent.
As per official data released today, WPI inflation in the food articles category rose to double digits at 11.91 per cent, driven by rising prices of onions, cereals and rice.
The rate of the price increase in food articles, which has a 14.34 per cent share in the WPI basket, was at 9.74 per cent in June. Inflation in food articles has risen for the third straight month.
Onion prices on annual basis more than doubled in July, shooting up by 145 per cent. Vegetables prices went up by 46.59 per cent during the month from 16.47 per cent in June.
Planning Commission Deputy Chairman Montek Singh Ahluwalia said the rise in inflation was mainly on account of depreciation in the currency against the dollar and hoped that as the supply side improves, food inflation would come down.
“With the currency appearing to stabilize, I don’t expect this (inflation) to continue. I think if we can get moderation on the food front once the impact of the good monsoon becomes available, I think we will end the year (with inflation) between 5 and 6 per cent,” he said.
The declining value of the rupee has made imports of oil costlier and pushed up fuel and power inflation to 11.31 per cent in July. . The government and the RBI have taken steps to check the widening current account deficit and reduce speculation in the rupee, which has fallen over 15 per cent since April.
With inflation rising in July for the second consecutive month, industry chambers urged the government to remove supply bottlenecks, while analysts see limited scope for interest rate cuts by the RBI.
“We would once again urge the Government to re-double its efforts to ease the bottlenecks in supply chain of agri-commodities. Enhanced production with efficient distribution mechanism would help us tide over the present problem of high food prices,” Ficci Secretary General Didar Singh said.
As per the data released today, inflation in manufactured items showed a marginal rise to 2.81 per cent in July from 2.75 per cent in June.
“Even manufacturing prices have remained high due to rising cost pressures triggered by rupee depreciation. RBI is left with limited policy options due to currency risks,” Bank of Baroda Chief Economist Rupa Rege Nitsure said.
The non-food articles category, which includes fiber, oilseeds and minerals, saw a decline in inflation to 5.51 per cent from 7.57 per cent in June.
Inflation for May was revised downwards to 4.58 per cent from the provisional estimate of 4.70 per cent.
In its preview of the first-quarter monetary policy last month, the Reserve Bank had said the stronger-than-expected monsoon has not softened food inflation as much as it should have and in particular, vegetable prices have been impacted by weather-driven supply disruptions.
Finance Minister P Chidambaram had earlier said there was a need to improve supply-side constraints to bring down retail inflation.
Data released earlier this week showed retail inflation falling marginally to 9.64 per cent in July, from 9.87 per cent in the previous month. -PTI
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