WPI at 8-mth low of 9.22%

Wholesale price-based inflation showed preliminary signs of easing, as it declined to an eight-month low of 9.22 per cent in July from 9.44 per cent in June, as food price pressures moderated. This rate is the pre-December level, when onion prices had catapulted it to 9.44 per cent in the last month of 2010 from 8.2 in November.

However, the final inflation figure for June might be higher than 9.22 per cent. May’s was provisionally reported as 9.06 per cent bu then revised to 9.56 per cent. Though food inflation declined, the rate of price rise in manufactured products saw a marginal surge to 7.49 per cent, compared to 7.43 per cent the previous month.

Analysts said non-food manufactured products’ inflation, in fact, rose to 7.7 per cent in July from 7.3 per cent in June. Onions defied the declining trend of food inflation. There was a jump of 26.96 per cent from 15.38 per cent earlier, but due to its minute weight of 0.2 per cent in the wholesale price index, the effect was not visible. Fruits, eggs, meat and fish, and milk saw a decline.

In fact, food inflation showed a rising trend towards the end of July. After signs of easing for two weeks, it rose to 9.9 per cent for the week ended July 30.

The non-food category in primary articles (those found in raw form) recorded a drop to 15.51 per cent in July from 18.57 per cent in June. The fuel and power category also observed a falling trend, from 12.85 per cent to 12.05 per cent in July. “The good news is that Brent crude prices have reduced, easing some of the global oil pressures. Hopefully, this will translate to a lower inflation figure during the end of this quarter,” said Anil Chakravarty, director of Deloitte, Haskins & Sells.

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The government’s chief economic advisor, Kaushik Basu, has said inflation is likely to go up next month and hover around this level till December. Earlier, Subir Gokarn, deputy governor of the Reserve Bank of India, had also said inflation would ease by November-December.

Kotak Mahindra Bank chief economist Indranil Pan said there were expectations of an upward trend till November-December “The big assumption that late rains do not spoil the party again for fruits and vegetables is likely to bring inflation down – but thereafter, the trajectory could again be sticky”, he said.

He added there was no need to change his current view of a 25 bps increase in the policy rate of RBI. “There are three crucial data points to track — GDP for Q1 (of this fiscal)..., next month’s industrial growth reading and the next WPI reading.”

Economists called the July number a temporary relief, but said inflation over nine per cent was a worry. “It is of some comfort that the last round of fuel price hike has not had as large an impact as anticipated. It, however, remains a source of concern that the headline number continues to persist over nine per cent,” Chakravarty said.

RBI, which has maintained that controlling inflation remains a priority over growth, is expected to go for another rate increase in September, feel many economists. “We believe there is no need to change our current view of a 25 basis points increase in the policy rate of RBI. There are three crucial data points to track — GDP for Q1 (June quarter), next month’s industrial growth reading and the next WPI reading,” said Pan.

IIP numbers for June were impressive, as industrial production grew 8.8 per cent against 5.9 per cent in May. GDP numbers for the June quarter will be out on August 30.