Editorial: Inflation woesBlurb

The spiralling retail inflation is emerging as a major cause for concern. The consumer price index (CPI)-based inflation for April skyrocketed to an 8-year high of 7.79%, much above the Reserve Bank of India’s comfort zone of 6%, for the fourth straight month. The latest data released by the National Statistical Office (NSO) presents a […]

The spiralling retail inflation is emerging as a major cause for concern. The consumer price index (CPI)-based inflation for April skyrocketed to an 8-year high of 7.79%, much above the Reserve Bank of India’s comfort zone of 6%, for the fourth straight month. The latest data released by the National Statistical Office (NSO) presents a grim picture, largely attributed to the increase in edible oil and fuel prices. The woes of the middle class and the poor, already reeling under the impact of the coronavirus pandemic, are expected to worsen in the days ahead. There is a possibility of back-to-back rate hikes in the next Monetary Policy Committee (MPC) meeting of the RBI in June. In anticipation of the inflation print, the rupee slipped to a record low, while stocks plummeted 2% amid concerns that runaway prices may force the RBI to tighten rates more aggressively. In the near term, the surge in global commodity prices following the ongoing war in Ukraine and the resultant rise in domestic inflation is expected to impact consumption demand and thereby hurt the growth in the output of consumer goods. Besides, the supply chain implications of the continued lockdowns in China, along with geopolitical tensions, will continue to impart downside risks for the output of sectors that are dependent on key raw materials provided by Russia, Ukraine or China. High price levels of fuel and food items, especially of vegetables, spices and oils, along with household services, have contributed to the sharp rise in inflation.

Food price inflation, both for rural and urban areas, surged to a 17-month high of 8.38% in April from 7.68% in March. The previous high of the headline retail inflation was recorded at 8.33% in May 2014. With the RBI already having increased repo rates by 0.40% earlier this month in an unscheduled, off-cycle policy review to check inflation, the focus will now be on its next month’s scheduled monetary policy review, with expectations of a steeper than expected hike in repo rates. The government needs to tame inflation and boost consumption by providing direct benefits to the vulnerable sections while continuing the heavy lifting in terms of capital spending. The annual wholesale inflation for 2021-22 fiscal was 13%, the highest since 2012-13 when it was recorded at 6.9%. The disquieting trend threatens to slow down the economic revival in the country. The World Bank has predicted that India’s GDP growth rate this year would be subdued to 8%, from its earlier projection of 8.7%, while the International Monetary Fund (IMF), in its World Economic Outlook report, has pegged the growth rate at 8.2%, instead of 9% it projected earlier. The RBI has admitted that the Indian economy is not immune to ‘negative externalities’.

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