Inflation spike

livemint.com:

RBI) 6% tolerance limit after a gap of four months. The Consumer Price Index rose 7.44% from a year earlier, up sharply from 4.87% in June. Though RBI had predicted a rise in inflation at its monetary policy review last week, the jump seems sharper than expected.

For its 6.2% forecast for the current quarter to come true, inflation will now have to ease significantly in the remaining weeks of the quarter. More broadly, though, the central bank should feel vindicated over its decision last week to keep interest rates on hold and undertake a bulky liquidity mop-up. For RBI to fulfil its price-stability promise of 4% inflation, a neutral stance looks further off than observers may have assumed.

Vegetable inflation is the main culprit for July’s spike, as erratic monsoon rainfall hurt output. As overall crop sowing has been higher, food prices may begin to cool in the coming months. And with crude oil prices also holding relatively stable, the current bout of inflation should hopefully not intensify.