...but inflation rears up anew

Wholesale Price Index (WPI)-based inflation for August rose surprisingly to 7.55%, as electricity tariffs increased around the country, the commerce ministry said. The bad news is, it would rise again, especially after the Rs5 diesel price hike on Thursday, experts said.

The headline number rose despite a base effect benefit – inflation was 6.87% in July and 9.78% in August a year ago. The government also revised the final inflation rate for June to 7.58% from 7.25% earlier, meaning the number for August could actually be in 8% territory after revision.

With the data well above the Reserve Bank of India’s comfort level of 5%, governor Duvvuri Subbarao is unlikely to cut interest rates, experts said.

“The RBI is unlikely to alter policy rates on Monday. We expect a rate cut of 25 basis points in the third quarter. Inflation will hover around 8-8.5% this fiscal,” said Indranil Sengupta, India economist at Merrill Lynch.

Prices of food articles surged 9.14%, while non-food manufactured goods prices, a measure of core inflation, rose 5.58%. Fuel & power group index rose 3.1%. Electricity tariffs rose by 13%.

“The fuel price hike will push up headline inflation number going forward. Quantitative easing announced by the European Central Bank and the US Federal Reserve will lift asset classes and higher commodity prices will have a big impact on India,” said Brinda Jagirdar, general manager-economic research department, State Bank of India.

Anjali Verma, economist with MF Global, expects the RBI to remain focused on combating inflationary expectations. A cash reserve ratio cut of 50-75 basis points and open market operations are more likely, she said.