August inflation accelerates to 7% on high food prices

NEW DELHI (Agencies): Retail inflation rose more-than-estimated in August, driven by high food and fuel costs, posing a fresh challenge to the central bank’s efforts to cool prices.

Consumer prices rose 7% last month from a year earlier, data released by the statistics ministry showed Monday. That’s faster than an estimate of a 6.90% gain in a Bloomberg survey of economists and compares with a 6.71% reading in July.

Food prices, which comprise about half of the inflation basket, accelerated 7.62% in August, while fuel and electricity prices went up 10.78% from a year ago, according to the government. Clothing and footwear prices increased 9.91%, while housing prices jumped 4.06%. Food costs rose as erratic monsoon rains and a record heatwave hit farm output, offsetting the slump in global commodity prices.

Monday’s data snapped a three-month downward trend and adds pressure on the Reserve Bank of India, which is seeking to cool price gains back to its 2%-6% target, while shielding the economy in the face of a global slowdown. The central bank has raised the benchmark policy rate by 140 basis points so far and is scheduled to hold its next rate review on Sept. 30.

“The higher-than-estimated print could prompt the central bank to go in for a rate hike of as much as 50 basis points in the next policy,”said Aditi Nayar, chief economist of ICRA Ltd.

Meanwhile, industrial output rose 2.4% in July from a year ago, data released separately by the Statistics Ministry showed. That compares with the survey estimate of a 4.2% increase and a 12.3% growth in June.