The inflation of the IPM jumps to a maximum of 7 mh of 2.6% in December
NEW DELHI: Wholesale price inflation soared to a maximum of seven months in December, largely led by a large increase in onion prices, prices of vegetables and food and make it difficult for RBI to lower interest rates.
Official data published on Tuesday showed that inflation, measured by the wholesale price index (MPI), increased 2.6% annually in December from 0.6% the previous month, but a rate below 3.5% in the corresponding month of 2018.
Food inflation soared by 13.2%, driven by a 456% rise in prices of onion s. Vegetable prices shot up by an annual 70% during the month, while potato Prices rose 45%.
The WPI movement reflected retail inflation data published on Monday, which rose to a maximum of five and a half years from 7.4% in December, led by a sharp increase in food prices. Food inflation under consumer price inflation increased by 14%, the highest in almost six years.
The sharp increase in inflation came at a time when it is estimated that growth will slow down to a minimum of 11 years of 5% in the current fiscal year. Economists said the sharp increase in inflation rates will complicate the choice of policies for the central bank, which will now continue with its interest rate pause.
Experts expect vegetable prices to moderate in the coming months as supplies improve and all eyes are on the February 1 Budget for measures to boost overall growth.
Encouragingly, sequential contraction in vegetables and protein complex seen in WPI should extend to retail inflation with a delay. We see that WPI inflation remains within the range in the short term and moderate to 1.8% in the fiscal year20, largely led by a significant correction in core WPI inflation. However, with the recent CPI inflation at 7.4% and looking to stay above the RBI tolerance range in the short term, MPC ( Monetary Policy Committee ) it may be difficult for you to ignore the inflation outlook, even if you can see that the price shock for vegetables is temporary, said Madhavi Arora, chief economist, Edelweiss Values.
The policy dilemma deepens, amidst an increase in inflation, growth and fragile fiscal status. We believe that conventional monetary accommodation still has more steam than others ~ 50 bp in this cycle of rate reduction, undoubtedly dependent on the evolution of inflation, amid several national and global idiosyncrasies. However, the timing of it is a bit complicated. But for now, the February cut seems to be ruled out, ”said Arora.