Fuel respite may not tame retail inflation

NEW DELHI: India’s retail inflation is expected to remain uncomfortably high in the current fiscal and may touch its highest annual print under the Narendra Modi government despite the Centre’s efforts to tame stubborn price pressure through tax cuts.

A median of projections by eight brokerages puts inflation at 6.7% in 2022-23, sharply up from 5.5% the previous year.

The projected print would surpass even the pandemic-led high of 6.2% in FY21 and continue to burn the pockets of consumers as the inflationary pressures from rising food prices, supply-chain disruptions, and pass-through of input costs are far from over. Following the Centre’s announcement on Saturday of a sharp cut in excise duty on fuel, increases in fertilizer and cooking gas subsidies, and cuts in customs and import duties on certain raw materials, several economists left their inflation estimates for the full fiscal unchanged. Some did prune projections by up to 40 basis points, but the overall expectations remained above the Reserve Bank of India’s (RBI’s) upper tolerance bound of 6%.

The estimates were in the range of 6.1-7.2%. They are much higher than RBI’s estimates in its April meeting, seeing retail inflation at 5.7% for this fiscal, with the print progressively improving each quarter.

Inflation had come in at an eight-year high of 7.79% in April, with food and beverage inflation even higher at 8.1%.

The excise duty cuts of ₹8 per litre on petrol and ₹6 per litre on diesel by the central government, on top of the cuts announced in November, do reverse the pandemic-era hikes but may not be enough to have a substantial impact on inflation outlook due to the sharp rise in crude oil prices, which have doubled to $110 per barrel over the year, particularly since the Russia-Ukraine war began.

Even as the oil marketing companies passed on the cuts, petrol and diesel prices are still hovering around ₹90-110 per litre in different cities.