In April, rising food and energy prices pushed India’s annual retail inflation to an eight-year high, strengthening economists’ belief that the central bank would have to raise interest rates more aggressively to keep prices in check, according to a Reuters report.
Russia’s aggression in Ukraine has pushed up consumer prices around the world, pushing crude oil and food prices to all-time highs, prompting several central banks to raise interest rates.
According to Reuters, inflation based on the Consumer Price Index rose to 7.79 percent from the forecast in April, above the Reserve Bank of India’s (RBI) 6% tolerance band for the fourth consecutive month, according to data released by the National Bureau of Statistics on Thursday.
The April figure was 6.95 percent higher than the previous month and 4.23 percent a year earlier. According to a Reuters poll, analysts expect retail inflation to be 7.5 percent.
Graphic: India’s retail inflation peaks in 8 years – https://graphics.reuters.com/INDIA-INFLATION/INDIA/egvbklgkdpq/chart.png
A source familiar with the matter told reporters on Wednesday that the RBI’s Monetary Policy Committee (MPC), which raised the key repo rate by 40 basis points to 4.40 per cent in an unexpected meeting earlier this month, would look into further interest rate hikes in June. The meeting, Reuters reported.
The next MPC meeting of the RBI is scheduled for June 6-8.
According to Sakshi Gupta, chief economist at HDFC Bank, inflation is expected to be around 7% in the next six to seven months, Reuters reported.
“The RBI may respond to the rate hike by 25-35 basis points (bps) at its June meeting and follow up with further rate hikes as the repo rate moves to 5.15% pre-epidemic level,” he said.
Hard times for consumers
Consumers, who have already been hit hard by the epidemic for the past two years, are now worried about rising food prices as prices of edible oils and vegetables have risen this year amid fears of lower wheat production.
Food consumption, which is about half of the CPI, rose 8.38 percent year-on-year in April on account of rising edible oil and vegetable prices, up from 7.68 percent a month earlier, Reuters reported.
The rupee has depreciated by about 4% against the dollar this year, making imported goods more expensive.
After the central bank intervened, the Indian rupee against the dollar hit a new record low of 77.42 before easing some losses.
Both the NSE Nifty 50 Index and the S&P BSE Sensex closed lower by more than 2% on fears of inflation and further interest rate tightening in the market, Reuters reported.
Since mid-March, retail prices of petrol, diesel and cooking gas have risen by 10%, with many companies increasing input costs to consumers, such as transportation and imported raw materials.
The three economists expected core CPI inflation to be between 6.8% and 7.1% in April, up from 6.30% in the previous month to 6.32%, Reuters reported.
“With rising food and fuel prices, it is becoming increasingly difficult to meet household costs,” said Nadeem Khan, a vendor at food-delivery firm Swiggy.