India's inflation eases; relief for Modi government

New Delhi: India's wholesale price-based inflation fell to a four-month low of 5.43 percent in June, while retail inflation declined to the lowest level since January 2012 on the back of moderation in food prices, providing much needed relief to the government of Prime Minister Narendra Modi.

The country's key inflation based on the Wholesale Price Index (WPI) was recorded at 6.01 percent in May. The WPI inflation eased in June on the back of moderation in food prices, according to data released by the commerce ministry Monday.

Data released by the Central Statistics Office (CSO), showed that retail inflation based on Consumer Price Index (CPI) declined to 7.31 percent in June from 8.28 percent in the previous month.

Slower increase in food prices and a favourable statistical base are the main reason for the moderation in inflation that has became a major political issue. A spurt in prices of onions and potatoes in recent weeks has been a headache for the new government.

Retail food inflation eased to 7.97 percent in June. For rural areas retail food inflation was recorded at 8.68 percent, while for urban areas it stood at 6.57 percent, the CSO data showed.

"The moderation in inflation together with the rebound in industrial production as per the recently released data, provides a positive signal that the structural bottlenecks afflicting the economy could be gradually showing signs of receding and green shoots of recovery could be around the corner," said Chandrajit Banerjee, director general, Confederation of Indian Industry (CII).

Reacting on the monthly data, president of Federation of Indian Chambers of Commerce and Industry (FICCI) Sidharth Birla said a set of focused measures undertaken by government has paid results.

However, Birla said risks remain from the possible poor monsoon.

"Below average monsoons might play a dampener and there is likelihood of pressure arising on oil prices as well due to global scenario," said Birla.

Primary articles, which have weightage of 20.12 percent in the WPI, rose by 6.84 percent in the month under review from an increase of 8.58 percent in May. It had grown by 8.79 percent in June 2013.

Fuel and power, which have a weightage 14.91 percent in the index, soared by 9.04 percent from 10.53 percent growth in May. The fuel and power cost had risen by 7.51 percent in June 2013.

According to data released by the ministry of commerce and industry, petrol prices in the month under review soared 9.02 percent. Diesel cost rose by 13.62 percent and liquefied petroleum gas (LPG) prices jumped by 6.74 percent.

Food inflation which has a weightage 14.34 percent in the index grew by 8.14 percent from 10.27 percent in June 2013. In May the food cost had risen by 9.50 percent.

Food inflation has become a concern for the government as weak monsoon has dampened hopes of any easing of prices. The central and state governments are taking steps to contain the rising food prices by either directly selling edible commodities or easing grain imports.

Sticky food inflation situation may not give much room to the Reserve Bank of India in easing key lending rates in its upcoming monetary policy review scheduled in August.

Prices of potein-based food items like pulses rose by 1.78 percent, milk prices were up 10.82 percent and egg, meat and fish became dearer by 10.27.

Fruits became costlier by 21.40 percent year-on-year, while the vegetable prices price decelerated by 5.89 percent.

Potato prices zoomed by 42.52 percent from a negative 8.38 percent growth in June 2013. However, onion prices fell by 10.70 percent from 114.76 percent rise in the corresponding month of last year.