Inflation jumps to 7.55%;diesel price hike to stoke it further

The high inflationary expectations may prevent the Reserve Bank from cutting interest rates in its mid-quarterly review of the monetary policy scheduled on Monday despite India Inc's demand for rate cut to boost growth.

Inflation, as measured by the Wholesale Price Index (WPI), was 6.87 per cent in July. In August 2011, however, it was 9.78 per cent.

Overall, food inflation declined to 9.14 per cent in August, from 10.06 per cent in July. Food articles have 14.3 per cent share in the WPI basket.

Manufacturing or core inflation rose to 6.14 per cent in August from 5.58 per cent in July, on the back of high prices of cotton textiles, paper and paper products, cement and lime.

Analysts said the diesel price hike will put pressure on inflation as input costs will rise and restrain RBI from cutting interest rates.

The Government yesterday hiked diesel price by Rs 5.63 per litre and capped supply of subsidised LPG to 6 cylinders per household in a year.

"The combined direct and indirect impacts (of diesel price hike) will total about 100 basis points. We expect headline WPI inflation to rise above 8 per cent by end-2012, and hence do not see any scope for the RBI to cut rates until the end of 2012," research firm Nomura said in a note.

In the food articles category, pulses turned expensive by 34.39 per cent in August, wheat by 12.85 per cent and cereals by 10.71 per cent on an annual basis.

Inflation for June was revised upwards to 7.58 per cent, from the provisional estimates of 7.25 per cent. MORE