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Wholesale Inflation Falls, Food Inflation Still A Concern

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Wholesale Inflation Falls, Food Inflation Still A Concern
Vishav - 14 June 2019

Even as India’s wholesale inflation eased to a 22-month low of 2.45% in May, mainly helped by lower prices of manufactured products and fuel, higher food inflation may still be a cause of concern for the policy makers.

According to the data released by the Ministry of Commerce and Industry, inflation in the food articles basket was 6.99% as compared to 1.74% during the same month last year.

“Despite lower wholesale inflation, stress is emerging in food articles category. Here, inflation is in high single digit,” said Sunil Kumar Sinha, Director (Public Finance) and Principal Economist, India Ratings and Research (Fitch Group).

He added that some cereals like jowar, bajra, maize, and pulses have witnessed double-digit inflation now for the fourth consecutive month.

“This against the backdrop of delayed and less than normal monsoon could aggravate the food inflation further in the coming months lest government monitors the situation proactively, checks speculative activities and intervenes in the market to stabilise prices,” he said.

Sinha added that in light of this, RBI may continue to pursue policy that would be supportive of growth and that there was still a scope of one more rate cut in FY20. The RBI has already made three cuts of 25 basis points each to its key lending rate in last three monetary policy reviews.

Earlier this week, government data had shown that retail inflation had shot up to a 7 month high of 3.05% per cent in May due to vegetable prices. This is in contrast to falling wholesale inflation, which is based on the monthly Wholesale Price Index.

The key driver of lower wholesale inflation has been manufactured products, where inflation declined to 1.28% in May from 1.72% in April. Even fuel group inflation dropped to 1% from 3.8% last month.

Sinha stated that lower inflation in the fuel category is due to softening of global crude prices.

“Further the core inflation at 1.2% is 29 months low in May 2019. This is clearly an indication of the weakening of demand impulse in the economy. Dwindling auto and FMCG sales growth has been pointing towards this for past several months,” he said.

The RBI in its June 6 monetary policy committee meeting had raised its inflation projection to 3-3.1% for the first half of 2019-20.

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