press club of india, Indian Tehalka News
If the outlook on the monsoons turns negative, the prices of food products may go up further.
Wholesale prices moved out of deflationary territory after 17 months in April, rising by 0.3 per cent compared to a contraction of 0.8 per cent in March—driven largely by rising food prices.
With consumer price inflation in April rising to 5.4 per cent, prospects for a fresh interest rate cut by the Reserve Bank of India (RBI) have dimmed for the next few months, said economists.
“Inflation at the wholesale level printing in at a positive number almost rules out chances of monetary easing in the near term especially after retail inflation also registered a higher than expected level last week,” Richa Gupta, Senior Economist at Deloitte India, said.
“On the food side, there were some alarming signals as pulses saw an increase of close to 4 per cent from the previous month showing that supply constraints in certain pockets can lead to flaring up of food inflation.”
The food articles category, among primary articles, saw inflation accelerating to 4.2 per cent in April, compared to 3.7 per cent in March. Manufactured food inflation surged to 8 per cent from 4.5 per cent over the same period. “Inflation in prices of cereals and pulses are persistently high for the past seven months and is firming up,” Ranen Banerjee, Leader Public Finance and Economics, PwC India said. “Manufactured food price has also registered a sharp rise that may not be a good sign.”
Inflation in manufactured products moved into positive territory after 13 months, rising to 0.7 per cent in April from a contraction of 0.13 per cent in the previous month.
The situation in the fuel and power segment eased somewhat in April with inflation in the sector contracting 4.8 per cent compared to a contraction of 8.3 per cent in March.
Commodity prices spike
“Prices of manufactured products rose on the back of increases in global commodity prices and a rise in sugar price on the back of expected shortages in the market,” Ms. Gupta said. “The number still remains low and given the outlook on commodity prices, (we) expect WPI to remain low.”
There are, however, other factors that could drive inflation up in the future such as monsoon and fuel prices.
“If the outlook on the monsoons turns negative, the prices of food products may go up further with traders trying to hedge their positions now to gain in the future,” Mr. Banerjee said.
“The fuel and power prices are still in the negative territory. However, the base effect on these is expected to wither out soon and we could see inflationary trends by July 2016,” he said.
From: The Hindu