Tough call for Raghuram Rajan as WPI inflation rises in Sept

A stagflation-like situation appears to have arisen as inflation jumped to an eight-month high of 6.46 per cent for the month of September. It is up from 6.10 per cent in August.

Growth continues to be muted with factory output plunging to 0.6 per cent in August. This comes two weeks before Reserve Bank of India (RBI) Governor Raghuram Rajan spells out his next review of the monetary policy.

Rajan, in his first monetary policy, hiked the repo rate by 25 basis points with a bid to bring inflation under control.

The primary articles index, with a 20.12 per cent weightage in the WPI index, rose 1.5 per cent. Food articles rose by 0.8 per cent. The fuel and power group rose by 2.6 per cent and prices of light diesel, aviation turbine fuel, petrol, and LPG increased.

Manufactured products, the group with the highest weightage (64.97 per cent) rose 0.7 per cent. Onion prices have risen nearly 300 per cent from last September. Vegetables cost nearly 90 per cent more than what they did last year.

Even as the government continues to reiterate that the economy will pick up towards the second half of FY2013/14, all major economic data released so far paints a rather grim picture.

The biggest concern is the International Monetary Fund's poor growth projection for India for the current fiscal year, a mere 3.8 per cent. It will have to be a tough call for Rajan to decide between growth and inflation.