Food, Fuel Prices Push Wholesale Inflation Higher In October
India's wholesale prices rose in October on costlier food and fuel, reducing the chances of a rate cut by the central bank next month.
Inflation measured by the Wholesale Price Index rose to 3.59 percent during the month from a year earlier, according to a statement by the Commerce Ministry. That’s higher than the 3.01 percent median estimate of 28 economists surveyed by Bloomberg. Wholesale prices increased 2.6 percent in September.
Both consumer and wholesale prices rose ahead of the Reserve Bank of India’s monetary policy review next month. RBI Governor Urjit Patel had called for a “cautious approach” the last time, highlighting upside risks to inflation. The central bank kept the repo rate unchanged while lowering its GDP growth forecast due to the lingering effects of demonetisation, the Goods and Services Tax-led disruption and rising oil prices.
Wholesale inflation rose on a 4 percent increase in food prices. Onion prices more than doubled, rising 127 percent over October last year. Vegetables were 36 percent costlier.
The surge was likely driven by a drop in kharif onion crop sowing because of unseasonal rains. Forty percent of India’s onion produce comes from the monsoon season. Yet, the crop can’t be stored as it needs relatively low humidity. Last week, the government allowed state-owned agencies to import onions to boost supply and check price rise.
The data also showed a 10.5 percent rise in prices of fuel, power and electricity, stemming from a surge in oil. Brent crude rebounded 41 percent from the year's low in June to trade above $60 a barrel.
Fuel inflation in India is expected to increase 120 basis points for the remaining part of the financial year 2017-18 due to higher oil prices, according to Soumya Kanti Ghosh, chief economist at the State Bank of India. It will also have an indirect impact on production and transportation costs, adding to the upward pressure on food prices, said a note by Nomura.
- Primary article prices rose 3.3 percent year-on-year.
- Fuel, power, lighting prices rose 10.52 percent.
- Manufactured product prices rose 2.62 percent.
- Food article prices rose 4.3 percent.