'Food prices may cool on kharif sowing; rate cut unlikely'

Experts and industry said kharif sowing trends indicate cooling of food inflation in the coming months, even as chances of a rate cut in the near-term are low, given the rise in WPI and retail inflation.

Wholesale inflation soared to a 23-month high of 3.55 per cent in July as vegetables, pulses and sugar turned costlier.

However, the rise in prices may provide partial relief to manufacturers and producers, although it brings bad news for household budgets of consumers, warranting redressal of the issues arising out of demand-supply mismatch.

Assocham cautioned that a further increase in wholesale price-based inflation (WPI) may push consumer price inflation which is likely to hit households and final consumers badly, observing that India was now in need of "strong actions" from the government to address structural issues of demand and supply within the industry.
 

However, it said the spurt in wholesale prices may give some relief to manufacturers and producers since earlier it was hampering their pricing power and profitability while limiting their potential to increase capital expenditure.

The WPI in July was substantially higher than the 1.62 per cent recorded in June. In July 2015, the rate was was (-)4 per cent, data released on Tuesday showed.

Retail inflation rose to 6.07 per cent in July, as against 5.77 per cent in June, as per data revealed last week.

"Emerging trends regarding the ongoing kharif sowing suggest an imminent cooling of food inflation in the coming months," Senior Economist at ICRA Limited Aditi Nayar said.

Wholesale price index (WPI) inflation in vegetables jumped by 28.05 per cent in July, while for pulses it rose 35.76 per cent.

Potato, a daily staple food among Indian households, turned dearer with annual inflation of 58.78 per cent.

"We do expect these numbers to come down once the monsoon impact on kharif output is clear," CARE Ratings said, adding that with both WPI and CPI inflation coming in higher, a rate action may not be expected for some time.

The RBI had left key rates unchanged in its policy review last week, citing upside risks to 5 per cent inflation target for March 2017.