Retail, wholesale inflation picks up pace again; RBI rate cuts now difficult

Retail inflation shot up to 2.36 per cent in July after easing for three months in a row due to hardening prices of sugar and confectionery items, fuels, tobacco and alcoholic beverages, according to consumer price index data released by the Central Statistics Office on Monday.

The rate of decline in food prices also slowed to (-) 0.29 per cent in July from (-) 2.12 per cent in June this year as the prices of some vegetables such as tomatoes firmed up. Retail inflation as measured by the consumer price index (CPI) was revised downwards to 1.46 per cent for June. The price of sugar and confectionery items went up by 8.27 per cent in July while tobacco and intoxicants category turned dearer by 6.39 per cent.

Housing expenses saw a price increase of 4.98 per cent while that of the fuel and light segment was up by 4.86 per cent. Retail price of clothing and footware items also increased by 4.22 per cent.

Easing price pressures had given RBI room to cut its main policy rate by 0.25 per cent to 6 per cent earlier this month, the lowest since November 2010. But the RBI retained its "neutral stance" and warned inflation could pick up again.

The country's wholesale price inflation rate also picked up in July after easing for four straight months, with food prices back on the rise. The wholesale price index rose 1.88 percent in July from a year earlier, compared with an increase of 0.63 percent in July 2016. The increase in the inflation rate is now likely to make it that much more difficult for the RBI to cut interest rates further.