NEW DELHI: India's wholesale price inflation eased to a five-month low in July, helped by a slower rise in fuel prices, but soaring costs for vegetables and fruit are likely to keep inflationary pressures simmering after the weak start to monsoon rains.
Adding to inflationary worries are a weak currency - the rupee is 4.7 percent off a 2014 high against the dollar struck on May 23 - and lingering uncertainties over global crude prices due to conflicts in Ukraine and the Middle East.
The wholesale price index (WPI) rose 5.19 percent year-on-year last month, its slowest pace since February, and compared with a 5.10 percent annual rise forecast by economists in a Reuters poll.
The data comes days after retail inflation accelerated to a two month-high of 7.96 percent in July, following a flare up in prices for vegetables, fruit and milk.
Part of the explanation for the divergence in trends between the two data series, lies in a beneficial base effect for WPI.
More crucially, food articles make up nearly 52 percent of the consumer price index, whereas they account for just above 14 percent of the WPI basket, making it far less susceptible to the effects of a poor start to the monsoon.
Thursday's data offered little sign of a broader economic recovery as wholesales prices for items like cement, machinery and transport equipments have barely risen since March.
Asia's third-largest economy is struggling to emerge from the longest spell of sub-par growth in a quarter-century as economic growth has stayed below 5 percent growth for the past two years - far too slow to provide jobs for the large numbers of youth entering India's labour force.
While some stimulus is needed to put momentum back in economic growth, economists don't expect the Reserve Bank of India (RBI) to cut policy rates until the first half of next year as it has targeted bringing consumer inflation down to 6 percent by the start of 2016.
The RBI held rates unchanged last week, in a policy review that cited the risk that inflation could increase due to the weak start to the monsoon.
"It is too early for the RBI to draw any comfort," Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai, said. "They are likely adopt a wait and watch approach for now."
Rains improved last month, and there are forecasts for a stronger second half to the four-month monsoon running from June through September.
But the weak start to the rainy season were one factor why wholesale vegetable prices have shot up 68 percent since March.
Prime Minister Narendra Modi, elected in May amid anger over persistently high inflation, particularly food inflation, has made cooling prices a top priority for his administration.
He has ordered a crackdown on hoarding, and set limits on the export of staples, such as onions and potatoes. But analysts say these measures, at best, can provide brief relief, and cannot fix a dilapidated supply system controlled by middlemen.
India is the world's second-biggest producer of fruit and vegetables after China, but it battles chronic shortages as an estimated 18 percent of the crop goes to waste every year due to inadequate cold storage and refrigerated transport facilities.
Strained public finances in a sluggish economy have made it tougher for the government to invest more than one-tenth of the amount it needs to fix India's cold supply chain.
"Deficient rainfall, coupled with inherent weaknesses in supply management, need to be addressed," said Rana Kapoor head of a local industry chamber ASSOCHAM.
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