Inflation accelerates

Inflation accelerated to a seven-month high in September, driven by sharp spikes in onion and vegetable prices. This may prompt the Reserve Bank of India (RBI) to persist with its tight monetary policy and add to the political pressures facing the UPA as it heads into crucial elections.
The wholesale price index rose to an annual 6.46% in September, higher than the previous month’s 6.10%. The rate stood at 8.07% during the same month of the previous year.
Onion prices more than quadrupled, rising 323% year-on-year. Other vegetables did not reach these astronomical levels, but as a group, their prices were up by 90% year-on-year in September.
Overall food inflation hovered around the 18% mark in September as supply pressures continued. Food inflation as measured by the consumer price index is also hovering around the double digit mark, making it difficult for RBI to ease interest rates. Food prices have been high for the past three years.Some of the increase in vegetable prices could be attributed to seasonal fluctuations, but strained supplies have kept overall food prices high. While the government has repeatedly said it is trying to shore up supplies, the situation on the price front remains grim.
High inflation has also acted as a dampener on any moves by the RBI to slash interest rates to boost flagging economic growth, further adding to the potentially adverse political fallout of the economic situation on the ruling coalition.

Separate data showed retail inflation quickened to 9.84% in September from the previous month's 9.52%. Food and beverages inflation, according to the consumer price index, rose 11.44% on an annual basis during the month. The corresponding provisional inflation rates for rural and urban areas for September 2013 were 9.71% and 9.93% respectively. Retail inflation has hovered around the double-digit mark for several months adding to the pressure of households in rural and urban areas.
The government also revised upwards the data for July to 5.85% from the previously reported 5.79%. Some economists said the RBI may raise interest rates again in its upcoming policy review in the face of inflationary pressures confronting the economy. Stubborn inflation has remained a policy challenge for the government and has made it difficult for the central bank to take measures to boost growth.