The April inflation print will reflect the rise in domestic fuel prices which was frozen after November last year. As the prices of vegetables and edible oils go up, so do the prices of food.
This will be the fourth consecutive month that retail inflation will cross the RBI’s 2-6% comfort zone and encourage further rate hikes in the future.
Shilan Shah, a senior Indian economist at Capital Economics, said, “CPI inflation seems to have increased in April due to higher food and fuel prices. Most of the effects of the recent fuel price hike will be felt in April.”
“We would not be surprised if core inflation also rises. The risk is that sustainable high inflation raises inflation expectations, which makes core inflation even higher.”
The RBI, which recently raised the repo rate by 40 basis points in a non-policy decision, is expected to raise its inflation forecast and policy rate further at its June meeting.
The devaluation of the rupee is another major concern as it will make India’s energy imports costlier and drive up fuel inflation. The risk of import inflation has only increased with the rupee plunging to record levels.
High inflation will discourage consumer spending, which is key to reviving India’s economy.
The MPC, headed by the RBI governor, is scheduled to meet between June 6 and 8 It has been made mandatory to keep the retail inflation within 2-6 percent
American brokerage Morgan Stanley on Wednesday cut its growth forecast for India by 30 basis points for 2022-23 and 2023-24, warning that macro stability indicators such as inflation are going to be “bad” going forward.
According to sources, tightening of policy rates by major central banks, including the RBI, will adversely affect demand in the next 6-8 months and slow down the recovery process.
In addition to the Reserve Bank of India (RBI), several central banks, including the US Federal Reserve and the Bank of England, have raised their benchmark lending rates to curb inflation, further exacerbated by the Russia-Ukraine conflict.
(With input from Reuters, PTI)