Skyrocketing onion and vegetable prices and costlier staples such as rice pushed India’s wholesale inflation to 6.46% in September from 6.10% in August, data released on Monday showed.
The spike in wholesale inflation has largely been driven by high food prices, which grew at 18.40% in September compared to 18.18% in August.
Wholesale onion prices grew by 322.94% during September on the back of 244.62% in the previous month, while on country-wide basis wholesale vegetable prices grew 89.37% in September, up from 77.81% in August.
The government had hoped food prices will start falling on the back of a good monsoon this year, but cyclone Phailin, which left a trail of destruction along the eastern coast, could wreck a fertile rice-growing belt, where the main summer crop is at a ripening stage.
The damage could shave off 1% of India’s total rice output, according to one official’s estimates. This could push up prices of rice even further. Wholesale rice prices grew 18.76% in September.
A dip in cereal and vegetables output pummeled by unseasonal floods in the plains of Bihar and Jharkhand, could further stoke India’s food inflation.
Andhra Pradesh and Odisha – two states to be most severely hit – contribute 12% and 7% to the country’s total rice output.
The four districts in Odisha – Ganjam, Jagatsinghpur, Khurda and Puri – and Srikakulam in neighbouring Andhra Pradesh, which are expected to bear the maximum brunt, are part of a prominent rice belt.
Shortage of rice could impact availability to meet requirements for the National Food Security Law, which seeks to give one-third of the population cereals at a fraction of their market price.
High inflation means the Reserve Bank of India, which will present its mid-quarter credit policy review later this month, could hesitate to cut interest rates, a step needed to boost economic growth.
So, your EMIs are unlikely to fall even as rising prices continue to eat away larger chunks of household incomes and slow economic growth pushes back hopes of decent salary increases.
Ahead of the festival season, high borrowing costs will likely dampen purchases of cars and other consumer goods, which are mostly bought through loans.
For the ruling UPA, the mix of high inflation, falling currency and poor economic growth comes at a politically inopportune time — key state elections are due at the end of the year, and national polls in eight months.
Retail price data, which will be released later on Monday, is likely to expected to broadly mirrored these trends, with shop-end prices of vegetables and cereals expected to soaring sharply in September. India’s retail inflation stood at 9.52% in August, marginally lower than 9.64% in the previous month.