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India’s wholesale inflation rises to seven-month high of 2.59% in December

The annual rate of inflation, based on monthly wholesale price index (WPI), stood at 3.46 per cent in December 2018.

India’s wholesale price-based inflation surged to a seven-month high of 2.59% in December, a day after data released showed that the country’s retail inflation galloped to a five-and-a-half year high, signalling increasing pricing pressures in the economy. In November, WPI-based inflation was at 0.58%.

Retail inflation rose to 7.35% in December from 5.35% a month ago, according to data released by the statistics ministry on Monday.

Data released by commerce and industry department on Tuesday showed that wholesale food inflation accelerated to 13.24% in December from 11.08% in a month ago, led by a 456% jump in onion prices. However, both fuel inflation and inflation of manufactured items contracted 1.46% and 0.25% respectively, signalling lack of pricing power of Indian producers.

Galloping inflation could not only constrain the Reserve Bank of India (RBI) from further easing its monetary policy, the review of which is scheduled for 6 February, but may also force it to rethink its accommodative policy stance. Policymakers will also have to contend with the looming threat of stagflation—a toxic combination of slowing growth and rising prices.

India’s economic growth slowed to a six-and-a-half-year low of 4.5% in the September quarter, but the statistics department has projected GDP growth to pick up in the second half to touch 5% in 2019-20.

Under the flexible inflation targeting framework adopted in 2016, RBI accords primacy to the objective of price stability, while simultaneously focusing on growth when inflation is under control.

In a surprise move last month, RBI paused its rate-cutting cycle amid rising inflation risk. The monetary policy committee had said it would maintain the “accommodative stance as long as it is necessary”, but made it clear that there was a need to optimize the impact of rate reductions.

RBI’s latest Inflation Expectations Survey of Households, released last month, showed three-month ahead and one-year ahead inflation expectations had increased sharply by 120 basis points and 180 basis points respectively.

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