Inflation up at 7.8 per cent, RBI rate cut unlikely

15 Oct 2012

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The wholesale price index (WPI) shot up to 7.8 per cent in September, the highest since November 2011, figures released by the government revealed on Monday.

With inflation ruling much higher than the Reserve Bank of India's stated comfort level of four to five per cent, the chances of the long-awaited rate cut at the central bank's review meet on October 30 appear to be bleak.

Inflation soared to 7.81 per cent, from 7.55 per cent in August, on the back of a sharp rise in the price of diesel and food items including pulses, wheat, cereals and potato. The price of pulses shot up by 29.28 per cent, while wheat prices soared by 18.63 per cent. Potato prices jumped by 52.2 per cent, while cereals were dearer by 14.18 per cent. Fuel prices rose by 11.9 per cent from a year earlier.

But overall food price inflation was lower at 7.86 per cent against 9.62 per cent in September 2011. WPI was also much higher at 10 per cent last year.

Former RBI governor and chairman of the Prime Minister's Economic Advisory Panel, C Rangarajan, said the hike in diesel prices last month attributed to the rise in the WPI. Rangarajan expects inflation to dip to seven per cent by March 2013. 

''It also depends upon how food prices behave in between,'' he said. ''I would say that the tendency for inflation hereafter would be in the downward direction. But till then the RBI probably would be looking for some sign of a decline in inflation in order to be able to move ahead.''

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