India’s August wholesale inflation eases as commodity prices fall

INDIA’S wholesale price inflation slowed in August helped by a fall in commodity prices, but double-digit price gains for the 17th month raise the chance for more rate hikes this month.

The wholesale price index climbed 12.41 per cent in August from a year earlier, lower than a forecast of 13 per cent in a Reuters poll, and compared with 13.93 per cent the previous month.

While falls in global crude oil and commodity prices have eased pressure on companies facing a rise in input costs, prices rose for a broad range of food items - cereals and vegetables among them, data showed.

A near 7 per cent depreciation of the rupee against the US dollar this year has made imported inputs costlier for companies who have tried to pass higher prices on to consumers as the economic recovery gains momentum.

Wholesale food prices, contributing about a quarter of the WPI index, climbed 9.93 per cent in August from 9.41 per cent in July. Fruit prices jumped 31.75 per cent and vegetable prices by 22.29 per cent over the year, data showed.

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has lifted the repo rate by 140 basis points since May, including by 50 bps last month. The government has also imposed export curbs on rice, wheat and sugar, and states stepped up other relief measures to manage inflation.

The MPC holds its next monetary policy review on Sep 30 and is widely expected to raise the repo rate by 35-50 basis points due to stubbornly high inflation.

Retail inflation in August accelerated to 7 per cent from a year earlier and will likely remain above the central bank’s tolerance band through this calendar year.

The pace of interest rate increases should be calibrated from here on to ensure economic recovery does not stall as the central bank tries to bring inflation within its tolerance band, Ashima Goyal, MPC member, told Reuters on Tuesday (Sep 13).

India’s economy grew 13.5 per cent in the April-June quarter from a year earlier, slower than the RBI’s earlier estimate of 16.2 per cent. The economy is expected to grow close to 7 per cent in the current financial year ending in March 2023. REUTERS