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Last Updated Tuesday September 26 2017 08:00 PM IST

Inflation spikes to 30-month high as fuel prices soar

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Inflation

New Delhi: Soaring petrol and diesel prices fueled wholesale inflation to a 30-month high of 5.25 percent in January although vegetables and pulses moderated.

Wholesale price index (WPI) based inflation, which reflects the annual rate of price rise, has risen for the second straight month, the cash crunch following demonetization notwithstanding.

In December and November, it stood at 3.39 percent and 3.38 percent, respectively.

In January 2016, the print was (-)1.07 percent.

The previous high in WPI at 5.41 percent was witnessed in July 2014.

As per Commerce Ministry data, prices of petrol, diesel, minerals and manufactured items like sugar and fiber witnessed a spurt.

Inflation in the 'fuel and power' basket more than doubled to 18.14 percent in January, up from 8.65 percent in the previous month. Inflation in diesel and petrol shot up to 31.10 percent and 15.66 percent during the month.

Oil prices have been on rise since OPEC in early December decided to cut output for the first time in eight years. Spot LNG prices have also risen from $5.25 to about $9 per MMBTU on winter heating requirements. Liquefied natural gas (LNG) is used for power generation.

"Continuous increase in prices of petrol and high speed diesel due to rise in global crude oil prices have to be taken care of by the policymakers since it may have an impact on import bills and subsequent impact on exchange rates," industry body Assocham said.

As per the data, food inflation basket witnessed contraction for the second month in a row with inflation at (-)0.56 percent in January as against (-)0.70 percent in December.

The rise in WPI is in contrast to the fall in retail inflation to a five-year low of 3.17 percent in January.

Industrial production too had contracted 0.4 percent in December 2016 to a four-month low, with consumer durables taking the worst hit on account of the cash crunch post notes ban.

Industry chamber Ficci said the industrial economy is still weak and there is a need to improve the flow of credit to manufacturing and infrastructure sectors.

"We also need to see a further reduction in the lending rates by banks and we hope that RBI's guidance on this to the banks will be followed up in the form of further reduction in rates for companies," Ficci said.

ICRA principal economist Aditi Nayar said the pass through of higher global prices of commodities into domestic prices, as well as an unfavorable base effect for some sub-groups, pushed up WPI inflation.

"Based on the expected trajectory of food prices, commodity prices and exchange rates, we expect WPI inflation to rise further in February 2017, before easing marginally in March 2017," Nayar said.

As per data, WPI inflation in vegetables, at (-)32.32 percent in January, saw deflationary pressure for the fifth consecutive month. This was helped by a substantial price fall in onions, which stood at (-)28.86 percent.

Pulse inflation moderated to 6.21 percent, from 18.12 percent in December. Potato prices recorded sharp fall at (-)0.20 percent, from 26.42 percent in the previous month.

Rate of price increase in egg, meat and fish was 3.59 percent during January.

Inflation in manufactured items saw some uptick at 3.99 percent compared with 3.67 percent in December.

While the rate of price rise in sugar was 22.83 percent, for fibers it was 15.18 percent, and 25.44 percent for minerals.

In its policy last week, RBI retained the benchmark interest rate and changed its stance from 'accommodative' to 'neutral', indicating that there will not be any rate cut in the near term.

The RBI, which looks at retail inflation for framing monetary policy, projected it to remain below 5 percent in the January-March quarter but said that hardening of global crude oil prices and volatility in exchange rates could put upside pressure in the next financial year.

Inflation, it said, will be in the range of 4-4.5 percent in the first half and 4.5-5 percent in the second half of 2017-18.

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