Inflation at 6-month high on onions.

NEW DELHI: The rate of inflation accelerated to a six-month high in August on the back of spiralling onion prices, posing yet another challenge for RBI ahead of the monetary policy review as it struggles to tame volatility in the foreign exchange market.

Data released on Monday showed the wholesale price index (WPI) rose an annual 6.1% in August, higher than previous month's 5.79%. The inflation rate in August 2012 stood at 8.01%. Food inflation, which has remained as a pressure point for the past three years, rose sharply during August to a three-year high of 18.18% due to a spurt in prices of onions. Onion prices rose 245% year-on-year in August. Vegetables prices soared 77.18% year-on-year, while cereal prices shot up an annual 14.35% in August. Egg, meat and fish prices remained stubborn, rising an annual 18.86% during the month. The government also revised upwards the data for June to 5.16% from the previously reported 4.86%. High food prices have remained a policy challenge for the embattled government for the past three years. So far, there has been no clear road map to tackle stubborn food prices.

Economists said WPI accelerated in August against expectations for a stabilization. They said they expect RBI to hold rates when it reviews policy later this week given the risks which still exist due to the volatility in rupee. The central bank will also watch the US Fed meeting on September 18 which will have an influence on its stance in the weeks ahead. The sharp slide of the rupee against the dollar in the past few weeks also had an impact in the upward push by making imports costlier.

"Inflation is accelerating and this may continue in the coming months as the weaker rupee pushes up the price of imported goods. WPI inflation may hold in the 6% to 7% range for the remainder of the year," Glenn Levine, senior economist at Moody's Analytics said in a note.

"Interest rate cuts have been off the table for several months now and with the rupee still vulnerable and inflation now rising, there is an outside chance of a near term rate rise. Our baseline scenario, however, is for interest rates to remain on hold across the medium term," Levine added.

Source : timesofindia.indiatimes.com