Inflation worries

Inflation worries

News:

1. The latest data of the Wholesale Price Index show a sharp surge in wholesale inflation in June.

Important facts:

2. The data, show a 54-months high of 5.77%, are a cause of concern.

3. The reasons for high inflation are given below:

• Rising crude oil prices.
• Inflation in the fuel and power group has quickened every month since February to June.
• Inflation in food articles, especially vegetables.
• Manufacturing products are also worrying wider inflationary trend.

4. Higher WPI inflation will have following implications:

• It will add pressure on the RBI to raise interest rates.
• Undermine the pace of GDP growth.

1. The WPI is not primary focus in the RBI’s inflation targeting approach to monetary policy formulation now.
2. The role of consumer price index remains economically significant.
3. The measure of wholesale price gains is the key deflator in computing the index of industrial production.
4. Wholesale price index is also used to deflate gross domestic product at current prices.