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Consumer inflation dips to 10.02% in June

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Consumer prices in India fell to 10.02 per cent on an annual basis in June, and lower than the 10.36 per cent recorded in May, government data released Wednesday showed.


The consumer price index (CPI) series was launched in January this year to more accurately capture inflation at the retail level – or the actual prices that consumers pay – rather than the wholesale price inflation, which only reflect factory gate prices. It measures retail prices in major food groups, fuel, clothing, housing and education across rural and urban India.



The Reserve Bank of India, however, uses wholesale inflation in its policy formulation.

 

On Monday, headline inflation, which is measured by the Wholesale Price Index, came in at 7.25 per cent, lower than estimates of 7.62 per cent and the May figure of 7.55 per cent.



Late on Monday, RBI governor D. Subbarao said headline inflation was “way above” the central bank’s threshold level.



"There is a threshold level of inflation. Below the threshold, may be, there is a trade-off between growth and inflation. But above the threshold, there is definitely no trade-off between growth and inflation," he said.



However, Subbarao cautioned that his views on inflation should not be read as a preview to the decisions to be taken in the quarterly monetary policy review on July 31.



"What I do want to caution here is that I am not implying anything by way of what decision we might take at the policy review at the end of July. I am only saying that inflation is above the threshold," Subbarao said.



Higher inflation rates will almost certainly make the central bank’s job of balancing growth and prices tougher. With a weak currency and tight liquidity, India Inc has been vocal in its calls for an interest rate cut to spur growth. The RBI cut rates by a higher-than-expected 50 basis points in April, but added that there was little room for more cuts in the future. It also left rates untouched in its policy review in June.



On Monday, Subbarao said that “… sacrificing growth is only in the short-term. In the medium-term, there is no trade-off between growth and inflation.”



India’s growth has slowed to 6.5 per cent in fiscal 2012, dragged down by a nine-year low of 5.3 per cent in the March quarter. The International Monetary Fund (IMF) on Monday cuts its forecast for India’s GDP growth to 6.5 per cent for fiscal 2013, down from the earlier 7.2 per cent.



In an update to the World Economic Outlook, the global body said “Growth momentum has also slowed in various emerging market economies, notably Brazil, China, and India. This partly reflects a weaker external environment, but domestic demand has also decelerated sharply in response to capacity constraints and policy tightening over the past year.”



It pointed that a number of emerging markets have been hit by growing investor risk aversion and “perceived growth uncertainty” that had led to declines in equity prices as well as currency outflows and depreciation.

Story first published on: July 18, 2012 11:14 (IST)

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