High prices of onion and other kitchen items drove the headline inflation to six-month high of 6.1% in August, limiting options for a rate cut by the new RBI Governor Raghuram Rajan who is scheduled to announce his maiden monetary policy review later this week.
Wholesale price index (WPI) based inflation rose for the third straight month, driven by a whopping 244.62% jump in onion prices on annual basis. WPI inflation was 5.79% in July.
Inflation in the vegetable basket as a whole was 77.81% and in the fruit segment it was 8.17% in August. The food segment as a whole became costlier by 18.8% during the month. On the positive side, potato prices fell by about 15%, followed by pulses which became cheaper by 14%.
In the case of manufactured items, sugar and edible oils became cheaper by 4.2% and 3.86%, respectively. Overall, manufactured items showed a moderate increase of 1.9% during the month on annual basis. The latest inflation data is going to weigh high on Rajan's mind when he announces the mid-quarter monetary policy on September 30. The industry has been demanding a cut in key policy rate to spur economic growth.
Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan said inflation, besides forex market, is expected to weigh on the RBI's decision on its policy. "All that I can say is that the RBI, I believe, will take into account the behaviour of inflation as well as what is happening in the foreign exchange market and take a decision," he said on the sidelines of an Assocham-organised event here.
CII Director General Chandrajit Banerjee said: "The rise in inflation should not come in the way of the policy of forthcoming monetary policy on September 20, as it is of utmost importance to revive investor sentiment."