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Along with tomatoes, inflation in onions remained at an elevated level of over 200 per cent, even as it moderated in October, compared to September. Overall, food inflation subsided a bit, though it remained high at a little over 18 per cent, while the rate of price rise in manufactured products went up for the first time in about a year, showed official data issued on Thursday.
As food inflation showed a tendency to spread to manufactured products, experts believe the Reserve Bank might not yield to industry pressure for cutting the policy rate to spur economic growth, which is not showing signs of recovery.
Inflation in tomatoes accelerated to 121.9 per cent in October, against a 86.94 per cent rise in September. It is the first time this financial year that the Wholesale Price Index (WPI)-based inflation touched seven per cent. It was 7.3 per cent in October last year.
The rate of price rise in onions, pumping up inflation in past months, was 278.2 per cent, against 322.9 per cent a month before. As a result, vegetable inflation declined a bit, to 78.4 per cent in October against 89.4 per cent in September. This took food inflation slightly down, to 18.2 per cent from 18.4 per cent earlier.
“I think it (inflation) clearly remains uncomfortable because of food inflation,” said Planning Commission Deputy Chairman Montek Singh Ahluwalia. “Core inflation is still quite modest. Food inflation must come down.”
He said he hoped the supply situation would improve, due to the decision to offload certain stocks. “Some seasonal spikes in a few items will get corrected,” he added.
On the other hand, manufactured inflation rose for the first time in a year, to 2.50 per cent in October from 2.03 per cent in September. It was partly due to food inflation spreading to manufactured products and the rupee’s depreciation making imports costlier.
“The data were mainly on expected lines but a bit of a worrying sign this time would be the manufactured items. Also, the food inflation burden is getting distributed to the other items, which should not happen,” said Soumya Kanti Ghosh, chief economic adviser of State Bank of India (SBI). The inflation for manufactured products occupies the largest share, of 65 per cent, in the inflation index.
Core inflation — manufactures minus food articles — stood at 2.6 per cent, the highest since April. Core inflation is generally taken as a determinant of RBI’s monetary stance.
Even then, RBI is not expected to cut the policy rate in next month’s review. One more set of data is to come before the RBI review, on December 18. Experts still feel wholesale price inflation has not reached a peak, with the numbers possibly rising marginally next month, too.
“This shows that firms have started to pass on prices to the end-consumer, as they know they cannot absorb the cost anymore,” said D K Joshi, chief economist at CRISIL. Experts said input costs rose due to a high exchange rate, some pressure from food materials and other factors.
“In the context of the monetary policy stance, we are watchful for additional data points on inflation and any indications on easing of food inflation. At the same time, movement in the rupee, impacted by global cues, is also likely to continue determining further policy action,” said Bhupali Gursale of Angel Broking.
As inflation in food has started abating a bit, except for tomatoes, analysts expect it to fall further with kharif crops coming to the market, a price fall before general elections (due to release of grain stocks) and a lesser rise in minimum support prices (MSPs) for crops . Joshi said a good kharif and not much rise in the MSP could also lead to a fall in inflation in the coming months but that could take some time.
In October, fuel and power saw the rate of price rise going up to 10.3 per cent, compared to 10.1 per cent in the previous month. However, inflation in petrol, diesel and liquefied petroleum gas declined.
The August inflation figure has been sharply revised to 6.9 per cent from the earlier estimate of 6.1 per cent. Experts said this could make one sceptical of the provisional numbers. “This shows how fragile the advance estimates are and might lead to us losing faith on these numbers,”n said Joshi.
