Inflation eases to 5-month low of 7.25%

Food inflation again rises to 10.81% from 10.74%, in double digits for 4 months plus other upside risks

The Wholesale price inflation eased to a five-month low of 7.25 per cent in June, against 7.55 per cent in May, owing to easing price pressure on manufactured items and a two-and-a-half- year low rate of price rise in fuels.

However, food inflation rose to 10.81 per cent from 10.74 per cent over the period. Food inflation has been in double digits for four months. Economists said this, coupled with the while the erratic monsoon, presented the Reserve Bank of India (RBI) with a difficult choice on whether to risk cutting policy rates to boost economic growth. Also, there are upside risks to inflation such as a possible rise in diesel prices, which might prevent RBI from going for a rate cut, they said.

The divergent trend in overall inflation and food inflation could also be gauged by comparing the figures year-on-year. Overall inflation was 9.51 per cent in June 2011, food inflation was 7.64 per cent and manufactured products inflation was 7.9 per cent.

Food inflation rose due items like pulses and potatoes. Potato prices rose from 68.10 per cent in May to 75.85 per cent in June. Inflation for vegetables stood at 48.84 per cent, down from 49.43 per cent in May.

Aditi Nayar, economist, Icra, said sowing of pulses remained below-trend on account of the sub-par coverage and magnitude of the monsoon, and this might result in a further rise in prices.

Inflation for non-food articles in the primary category fell from 8.47 per cent in May to 6.85 per cent in June, while inflation for manufactured products fell from 5.02 per cent in May to five per cent in June. Core inflation, or inflation for non-food manufactured products, rose from 4.86 per cent in May to 4.89 per cent in June.

“In the coming months (probably next month), as the favourable base effect wanes, core inflation is likely to rise above the five per cent level,” said Shubhada Rao, chief economist, YES Bank.

Given the decelerating growth, industry chambers have asked RBI to cut key policy rates, saying food inflation could be tackled by addressing supply side bottlenecks. Commerce & Industry Minister Anand Sharma, too, batted for a rate cut to boost exports.

The finance ministry exuded confidence the declining trend in headline inflation would continue.