Wholesale Price Index (WPI)-based inflation might breach the six per cent-mark in the coming months, against 5.79 per cent in July, owing to the rupee’s fall.
In the three months till June, WPI-based inflation stood within the Reserve Bank of India’s (RBI’s) comfort zone of four-five per cent. In its monetary policy review last month, RBI had said it would try to restrict inflation to five per cent by the end of this financial year.
“The impact on inflation would be seen in a period of time, not in the immediate month. It depends on what level exchange rates settle at,” said Madan Sabnavis, chief economist, CARE Ratings. He added there would be a 0.5-1 per cent impact of imported inflation in the coming months, which could lead to WPI-based inflation exceeding six per cent.
Soumya Kanti Ghosh, chief economic advisor, State Bank of India, said the softening of international commodity prices wouldn’t help much. “Even if there is softening on the international prices front, the impact of the falling rupee would be felt on inflation, as the rupee has crossed all limits.” Ghosh said inflation might even exceed six per cent soon and cross 6.5 per cent after September.
Shubhada Rao, chief economist, YES Bank said that 10% depreciation in value of rupee against dollar leads to 60 basis point rise in inflation.
"We expect WPI inflation to touch 6.5% in March end. However, we are looking to revise it further upwards looking at the rising crude oil prices in international market.