India’s retail inflation rose to an 18-month high in April, largely driven by rising fuel and food prices and staying above the Reserve Bank of India’s upper tolerance limit for the fourth consecutive month, a Reuters poll found. .
The surge has been long-anticipated since the Indian government’s decision to wait until after major state elections in March to hike fuel prices. Energy prices have risen globally since Russia’s invasion of Ukraine in late February.
Food inflation, which accounts for nearly half of the consumer price index (CPI) basket, hit a multi-month high in March and is expected to remain elevated on the back of a rise in vegetable and cooking oil prices globally.
These factors pushed inflation in Asia’s third-largest economy to 7.5 percent in April on an annual basis, according to a May 5-9 poll of 45 economists from 6.95 percent in March.
If realized, this will be the highest inflation rate since October 2020 and will be above the RBI’s upper 6 per cent limit for the fourth consecutive month.
The forecast for the data, due for release on May 12 at 1200 GMT, was between 7.0 percent and 7.85 percent.
“The CPI inflation still rose in April due to higher food and fuel prices. The impact of the recent fuel price hike will be felt in April,” said Shilan Shah, senior Indian economist at Capital Economics.
“We wouldn’t be surprised if core inflation also increased. The risk is that continued high inflation raises inflation expectations, which pushes core inflation even higher.”
To make matters worse, the local price of oil, India’s biggest import, is also under upward pressure from the nearly 4 per cent depreciation in the rupee this year, with the currency touching a record low on Monday.
Wholesale price inflation was forecast at 14.48 per cent, continuing its double-digit streak for a year.
The elevated price outlook pushed the RBI – which recently shifted its focus from growth to price stability – to hike its repo rate for the first time since 2018, raising it 40 basis points to 4.40 in a surprise unscheduled meeting last week. percent done. more to follow.
The move came just before the US Federal Reserve hiked rates by 50 basis points later the same day.
“Inflation may remain above the RBI’s target band for three consecutive quarters, the first official ‘failure’ of the monetary framework,” said Rahul Bajoria, India’s chief economist at Barclays.