New Delhi, Oct 15: Costlier diesel fuelled inflation to 10-month high of 7.81 per cent in September and may limit the scope of the Reserve Bank to cut interest rates to boost growth.
Inflation, as measured by Wholesale Price Index (WPI),was 7.55 per cent in August. This is the fastest pace of price rise since November 2011 when inflation was 9.46 per cent.
The government on September 13 raised the diesel price by over Rs 5 a litre which has pushed up the inflation of ‘fuel and power' category to 11.88 per cent, from 8.32 per cent in August.
With regard to diesel, inflation for the segment rose by 8.94 per cent, from 0.36 per cent in the previous month.
The rise in inflation would restrict RBI's scope of easing policy rates in its second quarter review on October 30 as demanded by India Inc to kick-start the investment cycle.
Prime Minister's Economic Advisory Panel Chairman C Rangarajan expressed confidence that inflation would decline going forward, but the current situation is not favourable for the RBI to go in for a rate cut.
“When inflation continues to rise, it becomes a very difficult situation ...I am only saying that the circumstances are not too favourable (for rate cut),” he said.
The food inflation declined to 7.86 per cent during the month, from 9.14 per cent in August. Food articles have 14.3 per cent share in the WPI basket.
In the food articles category, wheat turned expensive by 18.63 per cent and cereals by 14.18 per cent on an annual basis.
Also potatoes turned dearer by 52.20 per cent and rice by 12.41 per cent during September.
“We expect food and overall inflation to inch higher in the coming quarter due to the second-round effects of higher diesel prices. As such, we do not expect a repo rate cut on October 30,” Nomura said in its report.
