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The rate of Wholesale Price Index (WPI)-based inflation rose to 4.86 per cent in June, after falling to a 43-month low of 4.7 per cent in May, according to data released by the commerce ministry on Monday. As retail inflation for the month stood at 9.87 per cent, the Reserve Bank of India (RBI) has been caught in a dilemma on easing its monetary stance later this month, analysts said.
"Of course, we will take into account inflation numbers while framing the policy," RBI Governor D Subbarao told reporters after a meeting with Finance Minister P Chidambaram.
It was mainly primary articles (unprocessed), particularly food, which pushed up inflation despite easing of rate of price rise in manufactured products and fuel items. This means depreciation of the rupee has so far not affected imported inflation. But analysts caution that things would not be as rosy in the coming months if the rupee continued to remain so low against the dollar.
The rise in inflation was mainly due to a 8.14 per cent rise in the prices of primary articles, against 6.65 per cent in May. Prices of food articles rose 9.74 per cent, against 8.25 per cent in May. The sharpest rise was seen in the case of vegetables - prices rose 16.47 per cent, against 4.85 per cent in May.
For manufactured items, which have a share of about 65 per cent in the WPI basket, inflation fell to 2.75 per cent, against 3.11 per cent in May.
"We thought higher food prices would be offset by the easing price growth of manufactured goods. However, in the end, it wasn't enough…. The headline figure ticked higher. Higher diesel prices linked to lower fuel subsidies continue to support overall prices," said Glenn Levine, senior economist, Moody's Analytics.
Fuel and power inflation stood at 7.12 per cent, against 7.32 per cent in May. Petrol prices fell 7.78 per cent, compared with a 4.43 per cent fall in the previous month. Diesel prices rose 22.7 per cent, compared to 21.1 in May.
Overall, WPI-based inflation remained in the Reserve Bank of India (RBI)'s comfort zone of four-five per cent, two weeks ahead of the central bank's monetary policy review.
"But this reprieve will be short-lived if the rupee continues to be weak through the year," an analysis by Crisil said.
Pulled down by weak macro economic numbers, the rupee on Monday declined to 59.89 against a dollar against 59.93 on Friday.
An analysis by the State Bank of India said inflation will inch up in July but will remain within the RBI comfort level.
The high Consumer Price Index (CPI)-based inflation of 9.87 per cent in June could make it difficult for RBI to cut the policy rate.
"The central bank would maintain status quo, as both the inflations (CPI and WPI) are heading upwards, which is not a good sign. Wholesale inflation would surely shoot above five per cent in the coming months," said Madan Sabnavis, chief economist, CARE Ratings.
