CNBC-TV18's Executive Editor Latha Venkatesh explains the impact of a hike
in the wholesale price index (WPI) inflation on the economy and the market
The wholesale price index (WPI) inflation rose
to 6.1 percent for August from 5.79 percent. CNBC-TV18’s Executive
Editor Latha Venkatesh explains what the data means to the economy and the
market.
Q. What does the renewed spike in inflation mean?
A: It is largely because of
vegetable prices. Prices of vegetables rose 15.3 percent month-on-month; onions
alone rose 51 percent. This part of inflation may also reverse quickly. What
isn’t reversing for many months are the prices of cereals; especially
rice.
Q. Should the market be worried about it?
A : Yes. The markets should worry about inflation. The high food
inflation ties in with the high CPI or consumer price inflation. What’s worse
is, this can’t be solved by interest rates. It requires a slowing down of the
fiscal transfer of money in the form of NREGS (National Rural Employment
Guarantee Scheme), minimum support prices (MSP) and the food security transfers.
Also, the problem can be solved only if structures are put in place to
improve farm-to-fork delivery and APMC (Agricultural Produce Market Committee)
rules are changed.
Q. Which is a more import indicator of inflation, wholesale or
retail?
A: Both are important. Retail, is
more important since it indicates how much the consumer is hurt.
Q. What is the near term trend in WPI likely to be?
A: September too may be bad, but
not as bad as August. October, November, and December are usually good months
for food inflation; it falls or at least plateaus. But, one cannot be too sure
as we are getting averse numbers, month after month.
Q. What impact, if any, is the Fed decision likely to have on
inflation trend in India near term?
A: Fed decision will impact through
the rupee. If Fed stops printing more dollars, rupee could depreciate, this will
increase inflation a bit. But, our inflation is driven largely by domestic
factors.
Source:MoneyControl.com
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