Inflation hits 5-month high on rising prices of rice, vegetables

Threat of a weak monsoon may push prices up further; Interest rate cut hopes dim

By: ENS Economic Bureau | New Delhi | Published: June 17, 2014 12:56:41 am
Rise in prices of food articles can be attributed to withholding of stocks ... State governments should take ... steps to ensure that speculative hoarding is discouraged Arun Jaitley, Finance Minister Rise in prices of food articles can be attributed to withholding of stocks … State governments should take … steps to ensure that speculative hoarding is discouraged. Arun Jaitley

Headline inflation rose 6.01 per cent in May, highest in the last five months, as prices of vegetables and even cereals shot up, pushing up the food inflation. The data comes amid looming threat of a weak monsoon that is likely to push inflation further up, dashing hopes of a rate cut by the Reserve Bank.

Reacting to the numbers finance minister Arun Jaitley said some of the pressures are due to speculation.
In an entry on his Facebook page the minister noted, “The rise in prices of food articles can also be attributed to withholding of stocks on account of apprehension of a weak monsoon. State governments should take effective steps to ensure that speculative hoarding is discouraged”.

A Citibank report too noted that it expected the base effect to turn favourable from June onwards. With “likely government measures to rein in food inflation, we maintain our view of WPI trending down towards an average of 5.5 per cent and CPI at 8 per cent in FY15”.

But Upasana Bhardwaj, economist, ING Vysya bank, said the government will need to undertake immediate measures to tackle food inflation as going forward, it will remain the biggest challenge especially with the risk of deficient monsoon. “We expect the government to release the excess food stocks to offset partly the rise in price in the event of deficient rains,” she said.

“India’s vulnerability to an increase in inflation in coming months has increased on account of higher oil prices with the escalation in geo-political tensions (the sectarian unrest in Iraq has led to oil prices rising to nine-month highs) and the sub-normal monsoons thus far (48 per cent below normal) faced by the country,” Care ratings said in its report.

As per the wholesale price index (WPI) data, released by the commerce ministry on Monday, food inflation has jumped 9.5 per cent in May as against 8.3 per cent during the corresponding period last year. While potatoes, milk, fruits and protein-rich items like eggs became expensive during the period even the price of rice too has risen.

The fuel and power segment also saw a price rise of 10.5 per cent during the month compared with the 7.3 per cent during the same period a year ago. The March inflation figures have also been revised upwards to 6 per cent from 5.70 per cent. The adverse numbers are the first disappointment for the NDA government as other latest data like export and industrial production have turned around.

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