NEW DELHI: Fruit and vegetable prices are likely to remain high in April with temperature rising, but monsoon dynamics could change this trend. If the rains are good, prices could stabilise. Food prices had gone up 3.12 per cent in March compared to 2.69 per cent in February.
Inflation based on the wholesale price index is expected to fall in the second half of April. Inflation was down in March to 5.7 per cent, compared to 6.55 per cent in February helped by a fall in the cost of manufactured goods, according to data released by the commerce ministry on Monday.
“We expect food inflation to inch up in April 2017, while WPI inflation is likely to decline further during the first quarter of FY18, before stabilising in subsequent months,” said Aditi Nayar, principal economist at ICRA.
Echoing similar sentiments, Anand James, chief market strategist at Geojit Financial Services, said, “Though WPI has cooled, uncertainty over monsoons and rise in food inflation along with a potential rise in minimum support price ensures that inflationary pressure should be firm in the next couple of months.”
Industry is worried that even though the rise in WPI numbers could not have a corresponding upward impact on consumer price index-based inflation, it might limit the possibility of rate cut by the Reserve Bank of India (RBI). Industry association Assocham has pointed out that RBI had left key policy rates unchanged at 6.25 per cent thrice in a row due to upside risks to inflation.
Nayar said RBI might focus on liquidity management measures in the next few policies.
In the absences of clarity on monsoon and the goods and services tax for the next few months, analysts feel there could be a prolonged pause for the policy rate. “The government is keeping a close tab on the progress made on irrigation projects, cold chain projects etc and improvement in these areas is likely to yield positive results,” said Pankaj Patel, president of FICCI.
According to analysts, the availability of new currency following demonetisation can spur consumer demand.
“The possibilities of inflation cooling are strong with the availability of new currency notes. But, if the government hikes minimum support price on a few food items, then an upward pressure on inflation is inevitable,” says Aamirullah Khan, economist and visiting professor, Amity International University.
According to the commerce ministry data, fuel inflation, too, declined to 18.16 per cent in March, from 21.02 per cent in February.