Wholesale inflation rose sharply to 1.88 per cent in July -- first rise in five months -- as some food articles turned dearer even as the industry pitched for cut in interest rates citing weak industrial activity.
Inflation based on the wholesale price index (WPI) was 0.90 per cent in June 2017 and 0.63 per cent in July 2016. The doubling in the rate of inflation in July, the first month of the Goods and Services Tax (GST) rollout, was mainly on account of turnaround in prices of food articles, especially vegetables.
WPI inflation has been in decline since March. Food articles, which were witnessing deflation for the previous two months, saw inflation go up to 2.15 per cent in July on a yearly basis, the official data released today showed.
Vegetable prices, which had witnessed a 21.16 per cent contraction in June, too shot up 21.95 per cent in July.
However, manufactured products saw a slight fall in inflation at 2.18 per cent in July, compared to 2.27 per cent in June.
In the fuel and power segment, inflation witnessed a decline at 4.37 per cent in July, over 5.28 per cent in the previous month.
Ficci President Pankaj Patel said that given the trend and outlook for inflation, there is space for a more accommodative stance in the monetary policy as private sector investments continue to remain weak.
"We look forward to a further cut in the policy rate by the RBI at the earliest. This, along with forthcoming festive season demand and expected improvement in rural incomes, should help propel consumption and thus investment sentiment," Patel said.
Icra Principal Economist Aditi Nayar said the turnaround in inflation for primary food items and minerals was because of spike in vegetable prices and unfavourable base effect, respectively.
"Businesses may observe the impact of GST on prices over the course of the ongoing quarter, before passing through changes related to area-based exemptions, input tax credit. WPI inflation is likely to rise further over coming months and the print (may be) between 1.8-2.8 per cent during the remainder of 2017-18," Nayar said.
Apart from vegetables, the food articles that saw rise in prices in July include egg, meat and fish where inflation stood at 3.30 per cent. Fruits saw inflation at 2.71 per cent, cereals (0.63 per cent) and paddy (3.47 per cent). Inflation in sugar was recorded at 8.44 per cent and minerals 1.90 per cent in July.
However, potato continued to see deflation at 42.45 per cent, pulses 32.56 per cent and onion 9.50 per cent. Assocham said some abatement in prices of pulses, potato and onion through policy measures is very much appreciable.
"Similarly, policymakers should check and address prices of products which are still at higher levels and are of national importance, including paddy and sugar," it said.
The final print of May WPI inflation witnessed a little surge at 2.26 per cent compared with provisional estimates of 2.17 per cent.
A nationwide GST was implemented on July 1 which combined a plethora of central and state levies into a 4-tier tax structure of 5, 12, 18 and 28 per cent for all goods and services.
Data released last week showed that industrial output hit a four-year low and contracted 0.1 per cent in June, mainly on account of decline in manufacturing and capital goods sectors.
Earlier this month, the Reserve Bank cut policy repo rate by 0.25 per cent to 6 per cent citing reduction in inflation risk. The rate cut was the first in 10 months and brought policy rates to a near 7-year low.
The RBI said it will endeavour to keep retail inflation close to 4 per cent, but in the near term, there might be some uptick on account of pay commission payouts and price adjustments post GST rollout.
The data for July retail inflation is due later in the day.