Inflation picks pace again, up 6.46% in September

India’s headline inflation captured by wholesale price index (WPI) rose 6.46 per cent last month, higher than analyst expectations and the fastest year-on-year monthly increase since February this year, setting a stage for further monetary tightening. The Indian central bank is scheduled to announce the quarterly review of monetary policy on October 29.

Last month, the new chief of the Indian central bank Raghuram Rajan took the market by surprise by raising key policy repo rate by 25 bps to 7.5 per cent in a hawkish attempt to fight inflation in his first monetary policy review.

RBI pointed out that inflation is high and household financial saving is lower than desirable, adding that as the inflationary consequences of exchange rate depreciation and suppressed inflation play out, they will offset some of the disinflationary effects of a better harvest and the negative output gap. It had added that WPI inflation, which had eased in Q1 of 2013-14, has started rising again as the pass-through of fuel price increases has been compounded by a sharp depreciation of the rupee and rising international commodity prices.

The provisional data, released on Monday, showed inflation rose 6.46 per cent in September over the year ago period as against 6.1 per cent in August and 8.07 per cent during the corresponding month of the previous year (September 2012 over September 2011). The inflation rate in the financial year so far was pegged at 5.64 per cent.

Inflation rate has been on a downward trend from an average of over 9 per cent in 2011 had around 7.5 per cent last calendar year. In the current year the headline inflation rate sported a secular decline from 7.3 per cent in January to 4.6 per cent in the month of May, one of the lowest rates in recent years. However, this picked up again and September marks the fourth month on trot when it has increased.

The rise in overall inflation was led by price increase of primary articles and fuel & power, which comprise a little over a third of the index.

Primary articles prices rose 13.5 per cent due to sharp 18 per cent rise in price of food articles in particular rice, vegetables, fruit, onion and egg, meat & fish. Price of fibres also rise around 20 per cent adding to rise in inflation of primary articles as a category.

The fuel & power category saw price rising 10 per cent led by 20 per cent increase in price of high speed diesel while price of petrol and LPG increased 9 per cent each.

Manufactured products saw just 2 per cent rise in prices last month as against 6.47 per cent rise in September 2012 over the same month the previous year.

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