Costlier vegetables push up inflation in July

NEW DELHI: Firmer vegetable prices drove both wholesale and retail inflation higher in July, reducing chances of further reduction in interest rates in the near future.

India’s headline inflation rate based on the Consumer Price Index went up to 2.36% in July from 1.46% in June and 6.07% a year earlier, data from the statistics office showed on Monday.

According to numbers issued separately by the commerce and industry ministry, wholesale inflation rate firmed up to 1.88% in July from 0.9% the previous month.


Citing effects from cyclical factors such as monsoon-related commodities becoming dearer, and the favourable base effect on CPI tapering off from August 2017, Devendra Kumar Pant, the chief economist at India Ratings, said: “Put together, the chances of monetary easing in the remainder of FY18 are very low.”

The Reserve Bank of India reduced the policy repurchase rate by a quarter percentage point on August 2, to a near seven-year low in the first cut in 10 months. But the central bank said it would remain on guard as price pressures may return in the wake of the government paying out higher house rent allowance to employees and the rollout of GST.

“The bar for rate cut is very high … we don’t see any significant chances of a rate cut,” said Indranil Pan, the chief economist at IDFC Bank.

The inflation numbers came after data showed a 0.1% contraction in June industrial production, which hit a four-year low mainly on account of a decline in manufacturing and capital goods sectors. Consumer inflation had slowed to a record low in June as industrial growth faltered in May in the run up to the introduction of GST.

In the wholesale basket, food inflation firmed up to 2.15% in July.