The government also revised the rise in wholesale price inflation for December to 3.68% from 3.39% earlier.
The Reserve Bank of India said it was possible that with significant remonetisation having taken place, there could be some reversal in vegetable prices in March and beyond. This isn’t quite how it is likely to happen.
In comparison to January, food prices were 0.2% higher, even as gasoline prices dropped 3.0% and those for fuel oil by another 0.4%. And the core inflation, too, looks fairly sticky.
India’s annual rate of inflation, based on monthly wholesale price index (WPI), increased to 6.55 per cent for February 2017 over corresponding month of the previous year.
Moreover there is wide disparity in the trends in food prices with some products registering a surge while others continue to fall.
The wholesale price index-based inflation is believed to have jumped to a 39-month high of 6.55 percent as compared to 5.25 percent in January on the back of expensive food and fuel items. For the poor they make up from much to a majority of income.
Madhavi Arora, economist, Kotak Mahindra Bank: “We are seeing a bit of an uptick in certain components of food inflation”.
The Government of India has taken a number of measures to control inflation. Mineral prices were up 31%.
However, it’s not actually changes in relative prices that we worry about when we think of inflation. Core producer prices increased 0.3%, versus the consensus expectation of 0.2%. Do we have inflationary pressure? “Nothing here to suggest the Fed shouldn’t raise interest rates at the FOMC meeting that concludes later today”.
As an investor, you should be very concerned, because inflation shrinks the real rate of return on investments. “The current indices don’t reflect the structure of the economy”, says Sen.
Led by adverse base effect and the narrowing of output gap, Kotak expects core inflation to remain sticky and inch up to an average of 5.1% in FY2018 from 4.7% in FY2017.
The central bank said at the time that “a broad-based stickiness is discernible in inflation”, particularly in housing, health, education, and miscellaneous goods and services consumed by households.
With both the inflations are up, the possibility of RBI going for a rate cut any time soon is nearly negligible.