Monday, 16 September 2013

August WPI rises to 6.1%, food inflation at 18.18%

The Wholesale Price Index(WPI) for the month of August rose to 6.1% versus 5.795 in July. An ET Now poll had predicted the date to come in at 5.9%.

The headline inflation rose at the fastest pace for six months in August, driven by the jump in food prices. The food inflation for the month rose to as high as 18.18% versus 11.91% in July.

The reading for June was revised to 5.16 per cent from 4.86 per cent, data released by the Ministry of Commerce and Industry showed.

When he holds only his first policy review this week, the new RBI governor has to confront what may well prove to be the biggest challenge of his time in office.

Raghuram Rajan has already warned he does not have a "magic wand" to deal with India's economic crisis, but hopes are high he can find a formula to stabilise the rupee, calm inflationary pressure and at the same time spark a revival in economic growth.

But first he will have to deal with the outcome of a pivotal meeting on Tuesday and Wednesday of the US Federal Reserve. The Fed is likely to announce measures to rein in its massive economic stimulus, an expected policy tapering that has already sparked an emerging market selloff contributing to the rupee's fall to a record low.

The August WPI inflation last major data point before the former IMF chief economist, who famously predicted the global financial crisis, holds his first policy meeting on Friday.

The Fed is expected to reduce its $85 billion a month bond-buying programme, but financial markets are uncertain about the extent of the reduction.

Concerns that India, along with other emerging markets, will see reduced capital inflows once the Fed trims its stimulus programme have been a major factor in the rupee's slump.

Many analysts say the economy is more vulnerable than most because of a record current account deficit and a fiscal deficit, both bloated by the increasing cost of oil imports as global crude prices are rising.

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