Demanding an “accomodative” monetary policy, industry cautioned that the double whammy arising out of declining industrial output and rising WPI inflation may hurt the economy’s growth prospects in the long run.”This clearly calls for a more proactive management from the supply side. We hope that the situation would be managed well and that inflation will remain within RBI’s indicative trajectory.”We need to broad base the growth impulses and this calls for support by way of an accommodative monetary policy,” Ficci President Harshavardhan Neotia said.Food inflation rose to 7.88 per cent in May as against 4.23 per cent in April, showed a government data today. Inflation in vegetables came in at 12.94 per cent, a sharp rise from 2.21 per cent, a month earlier. Pulses inflation remained stubborn at 35.56 per cent.
“Policymakers need to check and address through supply side responses the continuous rise in prices of commodities like pulses, food articles, cereals, wheat and other items of national interest that have been soaring continuously,” Assocham Secretary General D S Rawat said.He cautioned that the declining trend in industrial production and rising WPI may have negative impact on country’s economy in the long run.The April wholesale price-based inflation (WPI) was at 0.34 per cent and in March it was (-)0.45 per cent while it stood at (-)2.20 per cent in May last year.
“The WPI inflation will remain positive and move upwards as the base effect comes in and micro price increases will translate into higher inflation numbers,” CARE Ratings said.However, it added that higher prices is partly good news for the corporate sector which can expect their profit margins to improve marginally in the first two quarters of the year.Principal Economist at India Ratings & Research Sunil Kumar Sinha said the food items that are driving food inflation are not monsoon dependent except pulses, noting that going ahead, pressure could emanate from other components of WPI namely fuel and manufacturing.However, Senior Economist at ICRA Aditi Nayar said a favourable base effect and relief from the high temperatures would lead to some dip in wholesale food inflation in the immediate term whereas the impact of a well-distributed monsoon would become visible over the subsequent months.The hardening of inflation could further dent the chances of an interest rate cut by Reserve Bank.In its policy review earlier this month, RBI had retained January 2017 retail inflation target at 5 per cent, though with an upward bias on account of firming of oil prices and implementation of 7th Pay Commission recommendations.Pulled down by the poor show by manufacturing and capital goods sectors, the industrial production shrank by 0.8 per cent in April in its first decline in three months. Blame the price of crude oil that’s touched a 7-month high. It is going now for $50 a barrel. What’s the connection between the cost of a tomato and the cost of crude oil? This: Oil prices affect the entire economy because of its use in transportation of goods and services. India, which depends on imports to meet 80% of its oil needs, will have to spend Rs 9,126 crore more for every dollar per barrel increase in crude oil prices.