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LATEST NEWS UPDATES | Onions drive inflation to six-month high at 6% in August-Somesh Jha

Onions drive inflation to six-month high at 6% in August-Somesh Jha

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published Published on Sep 16, 2013   modified Modified on Sep 16, 2013
-The Business Standard


Central bank chief Raghuram Rajan likely to retain stance later this week, say economists

Inflation in onions skyrocketed to 244.62% in August against already high 119.4% in the previous month, jacking up the the rate of wholesale price rise to a six-month high of 6.10% from 5.8% in July, official data showed today.

Ironically, onion prices can't be brought down by interest rate policy, but it is all set to desist new RBI governor Raghuram Rajan from easing monetary stance of the central bank in its mid-quarter review later this month even as economic growth crashed to a four-year low of 4.4% in the first quarter of 2013-14, economists said.

On the other hand, inflation in manufactured products further fell to 1.90% from 2.81% despite depreciation of the rupee increasing imported inflation.

This amply showed that demand in the Indian as well as global economy remained subdued. Fuel inflation inched up to 11.34% from 11.31% even as the government raised petrol prices by 70 paise a litre and diesel 50 paise a litre from the midnight July, 31.

At a time when agriculture is the primary hope in the economy, food inflation surged to a three-year high of 18.2% in August against 11.9% in the previous month.

The culprit was mainly vegetables, and within that onions. Inflation in onions remained over 90% in the entire 2013 till August. For the first time,it rose to over 200%. At this time last year, onions prices fell 21% which could also be one of the reasons for magnifying the rate of price rise in August this year.

Prices of onions surged due to supply side problems including disruption due to rains.
India has ordered imports of onions from Egypt to cool down prices.

It is not that every item in food saw rise in inflation. In fact, cereals--both rice and wheat--saw decline in the rate of price rise. Even then cereal inflation was at elevated level, particularly rice. Inflation in cereals fell to 14.35% from 17.66%. The rate of price rise in rice declined to 20.13% from 21.15%, while wheat saw steep fall to 6.33% from 13.42%.

Prices of pulses declined for the second successive month and the rate of decline accelerated further to 14.40% against 7.39%.

However, other protein-based items saw rise in inflation. Egg, meat and fish inflation increased to 18.86% from 10.94% and milk saw it rising to 5.63% from 2.35%.

"We have not been able to control the inflation so far and it has seen an upward trend in past few months. The inflation primary rose due to rise in food articles," said Madan Sabnavis, chief economist, CARE Ratings.

This has further given boost to expectations that Rajan may not be able to cut rates his review on September 20. "The food inflation has risen majorly and the whole number has risen because of this. Overall numbers would not let RBI cut rates but food led inflation is not monetary policy dependent," Siddharth Shankar of financial information firm KASSA said.

The core inflation (manufactured items sans food articles) fell futher to 1.9% in August from 2.3%. Low rate of price rise in manufactured items and core inflation should have been ideal conditions for RBI to cut rates, but the party is being spoiled by food articles.

"Interest rate cuts have been off the table for several months now and with the rupee still vulnerable and inflation now rising, there is an outside chance of a near term rate rise", said Moody's Analytics, a research and analysis wing of Moody's Group.

It said that the interest rates would remain on hold across the medium term.

Moody's Analytics said the WPI inflation may hold in the range of 6-7% for the remaining year. RBI had said it would make all efforts to ease inflation to 5% by March, 2014.

According to data released last week, the retail-price inflation had softened to 9.52% in August against 9.64% a month ago.


The Business Standard, 16 September, 2013, http://www.business-standard.com/article/economy-policy/onions-drive-inflation-to-six-month-high-at-6-in-august-113091600840_1.html


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