A sharp rise in the prices of onions and other veggies has sent headline inflation to a six-month high of 6.1% in August. With this, the hopes of a cut in policy rates in the upcoming monetary policy review have faded.
Propelled mainly by a 245 % jump in onion prices, the Wholesale Price Index for August was higher than the 5.79 % inflation in July, though lower than 8.01 % in August 2012. With cereals up by 14 %, rice by 20 % and veggie prices rising by 78 % year-on-year, food inflation has reached a three-year high of 18.18 % in August. Egg, meat and fish prices have also risen by 18 %.
The WPI figure is worrisome as it comes after a sharp slowdown in GDP growth and private consumption demand. A weak rupee and a food price spike can lead to supply shocks. Factoring in the latest inflation and the forex movements, the tight money policy is likely to continue, unless the US Federal Reserve defers the withdrawal of its stimulus package.
Though food prices may start moderating post-October on a good harvest after the bountiful monsoons, price pressure could come from the plan to hike fuel prices by 10 % to ease the oil subsidy burden, which has risen with the falling rupee and rising crude prices.