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Food, fuel push up wholesale inflation to 4-month high of 3.24%in 'structural' shift

Economists see “underlying structural upward trend” in recently published macro numbers

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Food, fuel push up wholesale inflation to 4-month high of 3.24%in 'structural' shift
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Pushed up by higher food and fuel prices, wholesale price index (WPI) inflation climbed 1.36 percentage points in August to 3.24% from 1.88% in July, according to the data published by government on Thursday.

Economists said the latest macroeconomic figure, along with high August consumer price index (CPI) inflation at 3.36%, Index of Industrial Production (IIP) at 1.2% in July and a lacklustre 5.7% growth in gross domestic product (GDP) in the first quarter “characterised” an underlying structural shift in the economy.

D K Srivastava, chief policy advisor, EY India told DNA Money besides “transitory” changes, such a phenomenon could be seen in these numbers.

“These are seasonal influences but what is a cause of worry is that even the core WPI inflation shows an upward trend, and therefore, apart from these transitory changes, there is an underlying structural upward trend in WPI inflation also, just as it characterised CPI inflation,” he said.

The WPI last month soared as food inflation doubled to 4.24% from 2.12% a month before, with vegetable prices moving up 44.91% in August compared to 21.95% in July. The biggest surge was seen in onion prices that scaled up 88.46% last month.

Fuel and power inflation doubled to 9.99% from 4.37% during the same period on petrol and diesel prices that have remained firm over the last few months due to rising global crude prices.

Aditi Nayar, principal economist at credit rating firm Icra, said a sharper-than-expected uptick in primary food inflation led the WPI inflation for August exceed their forecast.

She expects minerals inflation to display volatility and “ramp up sharply” in the second half (H2) of the current fiscal.

“The continued rise in crude oil prices is expected to push up the mineral oils sub-index in the ongoing month. However, the subsequent upside risk posed by crude oil and other fuels is likely to be limited,” Nayar forecast in the statement issued by Icra.

Pankaj Patel, president, Ficci said that in order to check the food inflation from rising further, the government needed to double its efforts to boost agri-production and improve distribution and supply chains.

“The localised impact of uneven distribution of rainfall on agri-production will have to be minimised through measures on the supply side including through better storage infrastructure for agri-commodities,” he said.

Patel batted for growth and prodded the Reserve Bank of India (RBI) to go for further repo rate cut, notwithstanding the high CPI inflation.

“From the perspective of jobs and fresh employment opportunities, all policy levers at the disposal of government and RBI should be utilised even as further steps are taken to augment agri-production and improve the supply-side logistics,” said the industry lobby body chief.

In its last monetary policy, the central bank had slashed the repo rate by 0.25% to 6%. The RBI has cautioned about inflation creeping up due to an upward revision in pays of government employees and goods and services taxes (GST) rollout from July, which could result in prices of some commodities increasing.

On the fiscal side, EY’s Srivastava said the government should look at stimulating the economy without breaching its fiscal deficit target.

“There is a scope for public sector investment which can be accelerated further by investment that can be undertaken by governments of some states that are in a relatively better position. These could be rich states whose deficit is below 3%,” he said.

The EY economist also advocated shoring up of government’s non-tax revenues through aggressive disinvestment plans. He said the time was ripe with the rich valuation of some of the public sector undertaking (PSU) firms.

“This is the right time because the stock prices are relatively high. It (disinvestment) should be taken up rather urgently and the money should be used for building infrastructure and creating employment in the economy. Once you do this on the fiscal side, monetary policy can also come in at a later stage. After inflation expectations are controlled, monetary policy can also be accommodative,” he suggested.

EXPENSIVE LIVING

  • Inflation rose to 1.36 percentage points in August to 3.24% four-month high
     
  • The core WPI inflation showing an upward trend is worrisome, say experts
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