By Anant Vijay Kala
NEW DELHI--India's wholesale inflation eased to the lowest level in five months in July, but the relief could be temporary as weak seasonal rainfall drives up food prices.
The wholesale price index rose 5.19% from a year earlier, slower than June's 5.43% increase, government data showed Thursday. That was marginally higher than economists' expectation of a 5.10% increase.
Vegetable prices fell 1.27% from last July. However, they were up 22.83% from June.
India has been struggling to control inflation, which has risen to intolerably high levels in recent years and hurt growth in the south Asian economy. While inflation has eased in the past few months, a weak monsoon is threatening to hurt crop output during the country's main June to September agricultural season.
Concerns that global crude oil prices could spike if tensions in Iraq and Ukraine escalate are also stoking inflation fears. India imports almost 80% of its oil needs and any rise in global oil prices could push up its import costs, which could have a broader impact on prices of many other commodities.
The country's rainfall is so far about 18% less than the average levels it gets during the monsoon season. The shortfall has narrowed from as high as 50% toward the end of June. However, the damage to crops may have already been done, some analysts say.
"The sowing season is already over. Even if rainfall improves in the next few weeks, it may be too late to help the summer crop now," said N. R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy.
Consumer prices are also rising quickly, which could keep the central bank focused on taming inflation despite worries that its policies are hurting economic growth.
"Inflationary expectations are very high at the moment and that is what the Reserve Bank of India has recognized. This may limit the scope for monetary policy easing in the next two quarters or so," Mr. Bhanumurthy said.
On Aug. 5, the RBI left its main lending rate unchanged despite mounting pressure from industry lobby groups for a cut to help spur lending and boost growth that is stuck near the weakest levels in a decade. Contrary to its previous policy review in June when the central bank made some dovish references to the possibility of rate cuts, its views this time gave no indication of how soon a cut could take place, suggesting controlling inflation was still on top of its policy agenda.
Siddharth Birla, President of the Federation of Indian Chambers of Commerce and Industry, said he hoped authorities would focus on addressing structural problems stokinginflation and not just look at rate action.
"Also, it needs to be assured that industrial growth is not stifled and recent momentum seen in IIP (index of industrial production) numbers is kept pace with," Mr. Birla said.
Data Tuesday showed India's industrial output slowed to 3.4% in June from 5.0% in May, but still marked the third straight month of expansion, suggesting activity was improving.
The RBI wants consumer inflation to be no higher than 8% by January and 6% by January 2016.
Government data issued Tuesday showed it rose to 7.96% in July from 7.46% in June, largely due to a spike in vegetable prices.
Write to Anant Vijay Kala at firstname.lastname@example.org
(END) Dow Jones Newswires
August 14, 2014 06:58 ET (10:58 GMT)
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