Inflation In India Likely Reached A 16-Month High In March Due To Rising Food Prices

Inflation In India Likely Reached A 16-Month High In March Due To Rising Food Prices
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Retail inflation in India likely accelerated to a 16-month high of 6.35% in March, well beyond the Reserve Bank of India’s upper tolerance zone for the third month in a row, owing in part to a sustained rise in food costs, according to a survey of economists conducted by the news agency Reuters.

Because the pass-through to customers at gas pumps was delayed, the full impact of the surge in crude oil and global energy costs following Russia’s invasion of Ukraine in late February is not likely to manifest in consumer prices until April.

As measured by the consumer price index (CPI), inflation climbed to 6.35% in March from 6.07% in February, according to a Reuters survey of 48 economists conducted April 4-8. It’s the highest reading since November 2020.

Forecasts for the data, which are expected to be released on April 12 at 1200 GMT, ranged from 6.06% to 6.50%. Nobody expected it to dip below 6%, the upper limit of the RBI’s tolerance band.

“We expect headline inflation to have accelerated to 6.30% y/y as food prices edged higher in sequential terms after a three-month decline until February,” said Dhiraj Nim, an economist at ANZ, referring to the seasonal pattern in monthly changes in food prices.

Also Read: War To Shrink Ukraine Economy By 45%, Says World Bank 

Food prices, which account for roughly half of all inflation, are projected to stay high as supply chain disruptions caused by the Russia-Ukraine conflict impair global grain output, edible oil supplies, and fertilizer exports.

Palm oil, the world’s most extensively used vegetable oil, has seen an almost 50% increase in price. Food price increases are particularly felt by millions of people living in poverty, who have already lost employment and income due to the pandemic. 

Global commodity price increases, as well as edible oils, will show up in the March inflation data, according to Samiran Chakraborty, Citi’s top economist for India.

“Although there was a delay in the start of petrol price hikes post-state elections, retail prices have risen by INR 6.5/ltr over the last 10 days of March,” Chakraborty said.

Unlike other major central banks dealing with multi-decade high inflation rates, the RBI has decided to keep interest rates unchanged, even though inflation has risen well over its objective and shows minor prospects of abating anytime soon.

The RBI maintained its benchmark repo rate at a historic low of 4.0% on Friday. On the other hand, analysts are beginning to worry that the best time to start hiking interest rates has already passed.

“They are well behind the curve. The Fed’s actions have shown us that the moment you get to know you were wrong about inflation being transitory, you are forced to act more aggressively,” said Kunal Kundu, India economist at Societe Generale.

Also Read: U.N. Agency Says Record High Reached By Global Food Prices In March

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