Free Press Journal

Experts hint at rate hike; lower WPI inflation to have no impact


New Delhi : While inflation-based on wholesale prices eased to a four-month low of 4.53 per cent in August on softening of food prices; experts have warned that a sliding rupee and rising oil prices could prompt an interest rate hike by RBI.

The effect of rising petrol and diesel prices has been neutralised by deflation in food articles, which resulted a lower wholesale price index (WPI) inflation for August. The WPI-based inflation stood at 5.09 per cent in July and 3.24 per cent in August last year.

According to government data released on Friday, food articles registered deflation at 4.04 per cent in August 2018. Last month, deflation in this category was 2.16 per cent. Deflation in vegetables was 20.18 per cent in August, as against 14.07 per cent in the previous month.

Inflation in the ‘fuel and power’ basket was 17.73 per cent in August as prices of domestic fuel increased, in line with high global crude oil rates and a depreciating rupee. While inflation in liquefied petroleum gas (LPG) was 46.08 per cent, in diesel and petrol it was at 19.90 per cent and 16.30 per cent, respectively, during August.

ICRA, Principal Economist, Aditi Nayar said core inflation hardened to a series high 5 per cent in August, from 4.8 per cent in July, a signal that firms with pricing power are beginning to transmit the weaker rupee and rising costs associated with industrial inputs such as fuels, to final prices. “The rise in the core-WPI inflation in August 2018, in addition to the risks posed to the outlook for the CPI inflation by the Rupee depreciation, elevated crude oil prices and revision in MSPs, appear likely to prompt a majority of the MPC members to vote for a rate hike in the October 2018 policy meeting,” Nayar said.