April Inflation In India Was Likely At An 18-Month High, Shows A Survey Of Economists

April Inflation In India Was Likely At An 18-Month High, Shows A Survey Of Economists
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According to a recent survey of economists conducted by the news agency Reuters, India’s retail inflation likely rose to touch an 18-month high in April, mostly due to higher petroleum and food price inflation. They remained well above the Reserve Bank of India’s upper tolerance range for the fourth consecutive month.

Following the Indian government’s decision to delay raising fuel prices until after critical state elections in March, the increase has been widely anticipated. Since Russia invaded Ukraine in late February, global energy costs have risen dramatically.

Food inflation, which accounts for over half of the CPI basket, hit a multi-month high in March and is projected to rise as global vegetable and cooking oil prices rise.

According to a Reuters survey of 45 analysts conducted May 5-9, these factors likely propelled inflation in Asia’s third-largest economy to 7.5% on an annual basis in April, up from 6.95% in March. That would be the highest inflation rate since October 2020 and above the Reserve Bank of India’s top 6-percentage-point limit.

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Forecasts for the data, revealed on May 12 at 1200 GMT, ranged from 7.0% to 7.85%.

“CPI inflation appears to have surged higher still in April on the back of higher food and fuel prices. The bulk of the impact of the recent fuel price hikes will be felt in April,” said Shilan Shah, senior India economist at Capital Economics.

“We wouldn’t be surprised if core inflation has risen too. The risk is that sustained higher inflation drives up inflation expectations, which push core inflation even higher.”

To make matters worse, the local price of oil, India’s largest import, has been under pressure due to the rupee’s nearly 4% loss this year, with the currency reaching a new low on Monday.

The RBI, which only recently shifted its focus from growth to price stability, raised its repo rate for the first time since 2018, raising it 40 basis points to 4.40% in a surprise unscheduled meeting last week, with more hikes predicted.

The move came soon before the Federal Reserve of the United States raised interest rates by 50 basis points later that day.

“Inflation could remain above the RBI’s target band for three consecutive quarters, marking the first official ‘failure’ of the monetary framework,” noted Rahul Bajoria, chief India economist at Barclays.

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