Inflation, as measured by Wholesale Price Index, rose to 6.10 percent in the month of August from 5.79 percent in the previous month, dragged by massive rise in prices of food articles. A CNBC poll had expected inflation to be at 5.8 percent.
The rapidly rising prices of food and vegetables caused maximum damage to the August WPI inflation. It jumped from 18.18 percent in August from 11.91 percent in July. However, manufactured product prices rose too little, just under 2%. Core infaltion fell to 1.9 percent from 2.4 percent month-on-month.
In some products like metals, alloys and cement prices are lower year on year – indicating a deflationary trend that can discourage more investment. However, the immediate worry for the Reserve Bank will be the lack of any policy space to cut rates to fuel growth.
Bond prices fell post the inflation numbers as markets worried that any easing in the September policy may be ruled out, especially because the new RBI governor Raghuram Rajan has explicitly stated that he would want to stabilise inflation irrespective of what the source of that inflation is.
Meanwhile June WPI inflation was revised upwards to 5.16 percent from the provisional figure of 4.86 percent.
Below are the internals that make the WPI basket
Food Articles Inflation At 18.18% Vs 11.91% (MoM)
Food Articles Index Up 5.3% (MoM)
Primary Articles Inflation At 11.72% Vs 8.99% (MoM)
Primary Articles Index Up 3.8% (MoM)
Manufactured Pdts Inflation At 1.90% Vs 2.81% (MoM)
Manufactured Products Index Down 0.1% (MoM)
Fuel & Power Group Inflation At 11.34% Vs 11.31% (MoM)
Fuel & Power Group Index Up 1.3% (MoM)
All Commodities Index Up 1.2% (MoM)
Non-food Articles Index Down 0.5% (MoM)
Minerals Group Index Up 0.7% (MoM)