Worries grow for Modi govt as inflation rises and production falls

Inflation based on wholesale prices rose to a two-month high of 5.13 % in September, mainly due to hardening of food prices and rise in cost of petrol and diesel. Additionally, factory output fell to a three-month low in August because of a higher base effect.

The Wholesale Price Index (WPI) based inflation stood at 4.53% in August and 3.14% in September last year. According to the government data released on Monday, food articles witnessed hardening of prices with deflation at 0.21% September as against 4.04% in August.

Consumer price index (CPI)-based inflation rose from 3.69% in August to 3.77% in September while the index of industrial production (IIP) fell from 6.5% in July to 4.3% in August, according to data released by the Central Statistics Office.

Deflation in vegetables was 3.83% in September, compared to 20.18% in the previous month.

Inflation in 'fuel and power' basket in September was 16.65 per cent. Individually, in petrol and diesel it was 17.21% and 22.18%, respectively, and for LPG it was 33.51%.

Among food articles, potato inflation spiked to 80.13% in September, while onion and fruits witnessed deflation of 25.23% and 7.35%, respectively. Deflation in pulses stood at 18.14%.

The 5.13% inflation is the highest in two months, and a higher inflation than this level was last seen in July at 5.27%.

Data released last week showed retail inflation rose to 3.77% in September from 3.69% in the previous month. The RBI mainly takes into account retail inflation data while formulating monetary policy.

In its fourth monetary policy review for the fiscal last week, the Reserve Bank maintained status quo on the benchmark interest rate but warned that volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to the growth and inflation.

For October-March, the RBI pegged CPI-based retail inflation to be between 3.9-4.5%.

The volatility in the IIP growth rate indicates that industrial recovery remains uneven and fragile ahead of the festive season.