Diesel fuels fastest rise in inflation
Tags:
Costlier diesel fuelled inflation to a 10-month high of 7.81 per cent in September, when the price of diesel was hiked by more than Rs 5. Inflation, as measured by Wholesale Price Index, was 7.55 per cent in August. This marked the fastest rise since November 2011.
In the food articles category, cereals too became dearer by 14.18 per cent in September, from 10.7 per cent in August.
The Reserve Bank is scheduled to unveil its policy on October 30, and it is feared that high inflation may dissuade it from easing interest rates. Inflation numbers at 7.81 per cent came as a shocker led by fuel inflation which was 11.9 per cent followed by foodgrain (cereals and pulses) and other protein items like eggs and fish.
While the wholesale price index inflation was highest in ten months, foodgrain inflation at 17.2 per cent was the highest in 24 months, burning a hole in the aam admi’s pockets .
Crisil says the high core inflation over the past few months is due to the pass-through of higher imported input costs in order to alleviate the pressure on profit margins, rather than the pressure from the demand side.
The rupee has depreciated 15 per cent over last year and this has kept inflation above seven per cent for chemicals and basic metals which have high import content. The rating agency said that given high fuel and food inflation, WPI inflation will continue to remain above RBI’s comfort level of five per cent, making it difficult for RBI to cut repo rate in its monetary policy review on October 30.
Emkay Global shares this view saying that the impact of higher manufactured product and core inflation at 6.3 per cent and 5.6 per cent respectively could be a concern for RBI. However the brokerage house said that if the RBI administers a token 25 per cent rate cut it would be only because of pressure from the government.
Barclays doesn’t see a rate cut as the second round effects of higher diesel prices will keep food and overall inflation high.
Food constitutes the biggest items in terms of weight under the new CPI and high food inflation continues to pose the risk of inflation expectations becoming “unhedged” says Indranil Pan, chief economist, Kotak Mahindra Bank. Thus, the headline WPI inflation of 7.81 per cent is unlikely to lead RBI to reduce repo rates on October 30, he said.
Nomura expects inflation to inch above eight per cent and another 20 basis points in October.
Post new comment