India’s inflation soars to 7.55 percent in August

New Delhi : Driven by a sharp increase in food prices, inflation rose to 7.55 percent in August from 6.87 percent in July, government data showed Friday.

The more-than-expected rise in inflation dashes hopes of a rate cut Monday when the Reserve Bank of India meets to take stock of monetary policy keeping in view of the India’s slowing economic growth.

It is now widely believed that the inflationary pressure would increase following Thursday’s diesel price hike would have a cascading effect on prices and may force the Reserve Bank of India (RBI) to leave key rates unchanged.

RBI Governor D. Subbarao has said inflation remains above the central bank’s perceived comfort level of 5 per cent and needs to fall further or risk more damage to the economy.

Inflation, based on wholesale price index (WPI), was 9.78 percent in August 2011.

According to data released by the ministry of commerce and industry, a sharp increase in food items like pulses, wheat, potato and some other vegetables had stoked inflation up in August.

During the month under review, potato became costlier by 68.86 percent year-on-year, while prices of pulses surged by 34.39 percent. Wheat became costlier by 12.85 percent and prices of rice increased by 10.29 percent.

Overall, food inflation was recorded at 9.14 percent in August. Inflation of primary articles was 10.08 percent.

The government also revised upward June inflation figures. The WPI inflation for June is revised upward at 7.58 percent from 7.25 percent announced earlier.

The recent data showed that Indian economy was facing the dual challenge of high inflationary pressure and low growth.

“Inflation is a consequence of macroeconomic imbalances,” said Deputy Chairman of the Planning Commission Montek Singh Ahluwalia.

He said the government needed to take tough decisions to address the imbalances. “The move to hike diesel prices is one such touch decision that was needed,” Ahluwalia said at a news conference here.

The government Thursday announced the highest ever Rs.5 a litre or nearly 12 percent increase in diesel price, in a bid to control galloping fiscal deficit and stave off ratings downgrade.

According to data released by the Central Statistical Organisation (CSO) recently, the Indian economy grew at a sluggish 5.5 percent in April-June 2012 period as compared to 8 percent in the corresponding quarter of previous year.

“The growth situation at the moment is disappointingly low,” said Ahluwalia.