New Delhi, Sept. 16: High prices of onion drove inflation to a six-month high of 6.1 per cent in August, complicating the options before new RBI governor Raghuram Rajan, who is set to unveil his maiden mid-quarter monetary policy on Friday.
Inflation based on the wholesale price index (WPI) rose for the third straight month, spurred by a massive 244.62 per cent jump in onion prices year-on-year.
Inflation was 5.79 per cent in July.
Late planting and disruptions in supply because of a heavy monsoon fuelled food inflation.
However, potato prices fell about 15 per cent, followed by pulses, which became cheaper by 14 per cent.
“What has been a key concern for a long time now is that the rise in food prices continues to contribute strongly to the overall inflation. It is important that structural factors affecting food inflation are addressed on a priority basis,” A. Didar Singh, secretary-general of Ficci, said.
Inflation in vegetables was 77.81 per cent; it was 8.17 per cent for fruits in August. The food segment as a whole became costlier by 18.8 per cent during the month.
Economist Garima Kapoor of Yes Bank in a research note said, “While the arrival of the kharif crop from October may help to ease the prices, distribution bottlenecks remain a matter of grave concern.”
For manufactured items, sugar and edible oils became cheaper by 4.2 per cent and 3.86 per cent, respectively.
The latest inflation data will limit options for a rate cut by the RBI.
Industry has been demanding a cut in key policy rates to spur growth.
CII director-general Chandrajit Banerjee said, “The rise in inflation should not come in the way of the forthcoming monetary policy as it is of utmost importance to revive investor sentiment.”
C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said inflation, besides the forex market, was expected to weigh on the RBI’s decision.
“All that I can say is that the RBI will take into account the behaviour of inflation as well as what is happening in the foreign exchange market and take a decision,” Rangarajan said on the sidelines of an event here.
Rajan will also be following the outcome of the meetings of the US Federal Reserve on Tuesday and Wednesday.