New Delhi. June 16: Rising prices of essential food items like vegetables, fruits and cereals, pushed up inflation to five-month high of 6.01 percent in May and the likelihood of sub-normal monsoon and political tension in Iraq may further worsen the price situation.
The rise in inflation has been mainly on account of 31.44 percent increase in prices of potato, 19.40 percent in fruits and 12.75 percent in rice, according to the official data on Wholesale Price Index (WPI) based inflation.
The food inflation stood at 9.50 percent last month, while the manufactured inflation was 3.55 percent.
Indicating that hard times are ahead, Barclays (India) Chief Economist Siddhartha Sanyal said: “The risks from a poor monsoon and uncertainties around global oil prices due to geopolitical tensions in Iraq remain”.
Such high level of inflation was witnessed last in December when it was 6.4 percent.
The WPI inflation was 5.20 percent in April and 4.58 percent a year ago in May. The March inflation figures have been revised upwards to 6 percent from 5.70 percent.
Expressing concern over spurt in food inflation, industry chamber CII said the government should implement APMC Act, develop advanced supply chains, rationalise subsidies, augment investment in agri-infrastructure and encourage FDI in retail.
Prime Minister Narendra Modi in his first address in the Lok Sabha last week had said: “We have promised to control inflation. We are determined achieve this target”.
The government is preparing contingency plans to deal with the impact of below-normal monsoon on food prices. The IMD has cut its June-September monsoon forecast to 93 percent.
Meanwhile on the global front, worsening political situation in Iraq is pushing up the crude oil prices which will have a bearing on inflation.
As per the data, core inflation rose to 3.8 percent in May from 3.4 percent in April.
Persistence of the rise in crude oil prices and the weakness in the Indian Rupee in the ongoing month could feed through to higher core inflation going ahead, said ICRA Senior Economist Aditi Nayar said.
“With monsoon-related concerns for the inflation trajectory getting compounded by the recent rise in crude oil prices and the weakness in the INR, measures to address the supply side causes of high food inflation have assumed added significance,” Nayar added.
During May, inflation in fuel and power category stood at 10.53 percent, while in non-food articles as a whole it was 4.94 percent.
The rate of price rise in protein rich items like egg, meat and fish was 12.47 percent, and 9.57 percent in milk.
Rising inflation will make it difficult for RBI to cut interest rates to boost growth. It had hold rates steady for last two policies to check inflation.
In the textiles group category, manmade fabric, jute sacking cloth, jute sacking bag and cotton fabric became dearer by one percent each, though prices of jute yarn declined by 4 percent and tyre cord fabric and gunny and hessian cloth by one percent each.
Similar price increase was noticed in other categories like wood and wood products, paper and paper products, leather and leather products, rubber and plastic products and chemicals and chemical products.
Items in metals, machinery and machine tools and transport equipment categories too became expensive during May pushing up the overall inflation rate.
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