A sharp rise in onion and other vegetable prices pushed the Wholesale Price Index (WPI) to a five-month high of 5.78 per cent in July. While onion prices flared 145 per cent, vegetable prices were up 46.59 per cent during the month under review.
This is much higher than the RBI’s comfort zone of 4-5 per cent for WPI inflation, which is the main gauge for inflation.
On the back of sharp rise in WPI-inflation, the 10-year G-sec yields hit a 15-month high to touch 8.5 per cent on Wednesday.
The higher-than-expected July inflation print is likely to add further pressure on the RBI in sustaining efforts to support the local currency.
The rupee has lost 10.3 per cent against the US dollar in 2013, partly due to strengthening of dollar and US Fed’s announcement of a likely tapering in bond purchase programme from September.
The July 2013 WPI inflation print was higher than 4.86 per cent recorded in June 2013, but lower than July 2012 reading of 7.28 per cent.
Food articles’ inflation rose to double digits at 11.91 per cent in July 2013 against 9.74 per cent in June.
Planning Commission Deputy Chairman Montek Singh Ahluwalia said that the rise in inflation was mainly on account of the sharp slide in rupee against the dollar. He expressed hope that food inflation would come down as supply side bottlenecks are removed.
“With currency appearing to stabilise, I don’t expect this (inflation) to continue. I think if we can get moderation in food front once the impact of good monsoon becomes available, I think we will end this year with inflation between 5 and 6 per cent.”
The sharp fall in rupee has increased the oil import bill and pushed up fuel and power inflation to 11.31 per cent in July.