What is more interesting is that wholesale inflation fell on the back of vegetable prices and cheaper fuel, while retail inflation rose on the back of costlier food, apart from other items like fuel.
The latest data made available by the government shows that wholesale price index, or wholesale inflation, fell to an eight month low at -2.4% in June. Consumer price index, or retail inflation, on the other hand, rose to an eight month high of 5.4% in the same month.
What is more interesting is that wholesale inflation fell on the back of vegetable prices and cheaper fuel, while retail inflation rose on the back of costlier food, apart from other items like fuel.
So why are retail and wholesale inflation not in sync?
CPI vs WPI
source: tradingeconomics.com
According to this Financial Times report, former Reserve Bank of India Governor D Subbarao explained this as, "statistical differences stemming from coverage, classification of items and the relative weights of their constituents."
Also, the weightage of items in the two indexes vary giving rise to this divergent data.
Even as the debate on the efficacy of the data rages on, the Reserve Bank of India (RBI) has decided to peg its monetary policy on the retail inflation as Raghuram Rajan feels it is more accurate projection of price rise in the country.
Either way, food inflation is on the upswing and its impact on monetary policy and interest rate easing is going to be visible in the near future.
Rajan has already "front loaded" an interest rate cut in his last monetary policy decision and said that the future course of action will depend upon monsoon and inflation.
A deficient monsoon, as predicted by India Meteorological Department (IMD) will have further negative impact on food prices in India.
FOOD INFLATION
Clearly, food inflation in India is becoming an issue that the government is unable to solve at the moment.
A look at certain food items and their prices will show that although wholesale inflation has fallen over the past eight months, inflation in food articles has inched up, especially in pulses, milk, onion and fruits.
Pulses, although makes up just 0.72% of the index, have been worst hit with an inflation of 33.67% in June, and 22.84, 15.47, 13.22, 14.50 and 12.56% from May to January, respectively. So much so that the Prime Minister had to intervene and make a statement asking farmers to produce more pulses.
In the meantime, Indian government is floating tenders to import pulses in order to bring down prices.
According to government data, retail food inflation is following the same trajectory as wholesale food prices.
Consumer Food Price Index (CFPI) rose to 5.48% in June as against 4.8% in May. Although food inflation has fallen from the 7.2% level it was at in June last year, this monthly rise in food inflation is a cause for worry.
source: tradingeconomics.com
Also Read: Wholesale inflation in negative zone but your food plate continues to get more expensive
Retail inflation in meat and fish rose to 6.99% in June 2015, pulses (22.24%), milk and products (7.18%) and vegetable prices rose by 5.37%.
The only positive news so far has been that sowing of kharif crops has been better than last year. As of July 3, sowing was up by over 50% as against last year.
Although, the government recognises the issue and its impact on India's growth, it has said that inflation management is its top priority. Following which, apart from pulses, imports of wheat and oilseeds are also being considered.
DS Rawat, President, ASSOCHAM said that prices of essential items like pulses and onions have shot up and therefore emphasis needs to be laid upon the management of supply of these items.
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