Inflation at five month low

DC CORRESPONDENT
Published Aug 15, 2014, 8:58 am IST
Updated Mar 31, 2019, 12:08 pm IST
WPI dips to 5.19 per cent due to decline in meat, egg, fuel prices
PTI Graphics
 PTI Graphics
New Delhi:Inflation based on wholesale price index (WPI), declined to 5-month low of 5.19 per cent in July on account of decline in egg, meat and fish and fuel prices. However, there is still over hang of poor monsoon on the inflation. 
 
Inflation was at 5.43 per cent in June, and 5.84 per cent in July last year. While WPI based inflation has softened, retail inflation, based on consumer price index (CPI), which was released on Tuesday rose to 7.96 per cent in July from 7.46 percent in June.
 
“While there is a divergence in headline trends, encouragingly both core WPI and CPI have moderated (core WPI: from 3.9 percent to 3.6 per cent and core CPI from 7.5 per cent to 7.4 per cent),” said Citi Research.
 
Food articles inflation rose to 8.43 per cent in July against 8.14 per cent in June. Onion prices fell by 8.13 per cent, year-on-year, in July. Potato prices shot up 46.41 per cent and fruits by 31.71 per cent. 
 
The rate of price rise in milk was at 10.46 per cent in July against 10.82 percent in June. Inflation for the eggs, meat and fish category stood at 2.71 per cent in July as against 10.27 per cent in the previous month. 
 
The inflation for rice was at 6.85 percent in July against 10.24 per cent in June. Inflation in the fuel and power category, meanwhile, was down at 7.40 per cent in July from 9.04 per cent in the previous month.
 
“Even after factoring in the price rise of vegetables, the impact on the WPI inflation was much lesser than it was for the CPI. This is because the key item of the price inflation in vegetables for July, namely tomatoes, was not a part of the accounting under WPI for July,” said  Indranil Pan, chief economist, Kotak Mahindra Bank. 
 
He explained that this is because the WPI follows a seasonal based approach in pricing of seasonal crops  such as mangoes, peas, tomatoes among others where the price quote is available only in the period when the fresh crops arrive in the markets and not during the sowing season of these crops. 
 
“With the importance of the WPI going down for policy making purposes, we do not expect any implication of the drop in WPI for the monetary policy. RBI, in our opinion, will continue to remain guarded against the retail price rise risks that can come though aggregate demand shifts or implications of poor monsoons on agriculture,” said Mr Pan. He said that RBI is expected to maintain a status quo so far as its monetary policy is concerned. 
 
Prices of primary and food articles remain a worrying area about inflation both at WPI and CPI level. Deficient rainfall, coupled with inherent weaknesses in supply management, need to be addressed, said Rana Kapoor president Assocham. “While food inflation may not be a function of interest rates, the monetary authorities do get greatly influenced by it since, the issues relate to common people,” he said.
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