Inflation jumps to 7.55 per cent in August - The New Indian Express

Inflation jumps to 7.55 per cent in August

Published: 14th September 2012 12:51 PM

Last Updated: 14th September 2012 05:28 PM

Overall inflation rose to 7.55 per cent in August on account of rising prices of food items and manufactured goods and may further escalate next month as a result of the recent diesel price hike.

The high inflationary expectations may prevent the Reserve Bank of India from cutting interest rates in its mid-quarterly review of the monetary policy scheduled on Monday despite India Inc's demand for rate cut to boost growth.

Inflation, as measured by the Wholesale Price Index (WPI), was 6.87 per cent in July. In August 2011, however, it was 9.78 per cent.

Overall, food inflation declined to 9.14 per cent in August, from 10.06 per cent in July. Food articles have 14.3 per cent share in the WPI basket.

Manufacturing or core inflation rose to 6.14 per cent in August from 5.58 per cent in July, on the back of high prices of cotton textiles, paper and paper products, cement and lime.

Analysts said the diesel price hike will put pressure on inflation as input costs will rise and restrain RBI from cutting interest rates.

The Indian Government on Thursday hiked diesel price by Rs 5.63 per litre and capped supply of subsidised LPG to 6 cylinders per household in a year.

"The combined direct and indirect impacts (of diesel price hike) will total about 100 basis points. We expect headline WPI inflation to rise above 8 per cent by end-2012, and hence do not see any scope for the RBI to cut rates until the end of 2012," research firm Nomura said in a note.

In the food articles category, pulses turned expensive by 34.39 per cent in August, wheat by 12.85 per cent and cereals by 10.71 per cent on an annual basis.

Inflation for June was revised upwards to 7.58 per cent, from the provisional estimates of 7.25 per cent. .

India Inc had demanded that RBI cut key rates after the April-August industrial output contracted by 0.1 per cent.

"The pickup in core inflation confirms our expectation that the RBI will maintain the policy rate and the CRR in the policy review.

"The first and second round impact of the diesel price hike is expected to push WPI inflation above 8 per cent," ICRA Senior Economist Aditi Nayar said.

Industry chambers, however, continue their demand for making funds available cheaply. "The RBI should appreciate the intent of the Government in putting its fiscal house in order and perhaps complement its efforts in stimulating investment and consequently employment by making private borrowings from the banking system cheaper," Ficci said.

Meanwhile, Planning Commission Deputy Chairman Montek Singh Ahluwalia said that the diesel price hike would help bring down fiscal deficit by restructuring subsidies.

The government is targeting to bring down its fiscal deficit to 5.1 per cent of GDP in the current fiscal, from 5.8 per cent in 2011-12.

As per the official data, potatoes turned costlier by 68.86 per cent and rice by 10.29 per cent.

Inflation in eggs, meat, fish prices was 13.77 per cent, while in milk and fruits it was was 6.68 per cent and 1.14 per cent respectively.

Vegetables became costlier by 9.98 per cent in August, year-on-year. Inflation in this segment was 24.11 per cent in July. However, the pressure on prices of onions declined during August to (-) 20.67 per cent.

In non-food articles, inflation in oil seeds was 28.33 per cent, fibres (3.53 per cent) and minerals (9.74 per cent).

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