India’s retail inflation rose to an 18-month high in April, mainly due to rising fuel and food prices and for the fourth consecutive month above the Reserve Bank of India’s high tolerance threshold, according to a Reuters survey. The jump was long overdue after the Indian government decided to wait until after the main state elections in March to raise fuel prices. Global fuel prices have risen since Russia’s invasion of Ukraine in late February.
Food inflation, which accounted for nearly half of the consumer price index (CPI) basket, reached a multi-month high in March and is expected to remain high due to higher global vegetable and cooking oil prices. These factors probably pushed inflation in Asia’s third-largest economy to 7.5% year-on-year in April, from 6.95% in March, according to a Reuters poll of 45 economists on May 5-9.
If realized, it would be the highest inflation rate since October 2020 and above the RBI’s upper 6% limit. Forecasts for the data, due to be published on 12 May 1200 GMT, are between 7.0% and 7.85%.
“CPI inflation seems to have risen further in April on the back of higher food and fuel prices. Most of the effects of the recent fuel price hike will be felt in April, ”said Shilan Shah, senior Indian economist at Capital Economics. “We would not be surprised if core inflation also rises. The risk is that sustained higher inflation raises inflation expectations, which in turn pushes core inflation further. “
To make matters worse, local oil prices, India’s largest importer, have also been under upward pressure since the rupee fell nearly 4% this year, the currency hit a record Monday. Wholesale inflation was forecast at 14.48%, continuing its double-digit trend for one year.
The higher price outlook has pushed the RBI – which has recently shifted its focus from price growth to price stability – to raise its repo rate for the first time since 2018, raising it by 40 basis points to 4.40% at a surprisingly unscheduled meeting last week. The move comes just days before the US Federal Reserve’s 50 basis point rate hike.
“Inflation may be above the RBI’s target band for three consecutive quarters, marking the first official ‘failure’ of the financial structure,” said Rahul Bajoria, chief Indian economist at Barclays.