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Rupee impact: India could soon see 6%-plus inflation

Softening of global commodity prices might not help much

Somesh Jha  |  Mumbai 

Wholesale Price Index (WPI)-based 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 stood within the Reserve Bank of India’s (RBI’s) comfort zone of four-five per cent. In its monetary policy review last month, had said it would try to restrict to five per cent by the end of this financial year.

“The impact on 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 in the coming months, which could lead to WPI-based exceeding six per cent.

However, some said due to softening of global commodity prices, the impact could be neutralised. “We import a lot of fertilisers; global fertiliser prices have really fallen compared to the corresponding period last year. This would, more or less, compensate for the kind of depreciation the has seen,” said Devendra Pant, chief economist, India Ratings. He said a lot depended on how much of the burden of oil imports was passed on to consumers.

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 would be felt on inflation, as the has crossed all limits.” Ghosh said 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 against dollar leads to 60 basis point rise in

"We expect 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.

First Published: Thu, August 29 2013. 00:50 IST