Retail inflation peaks to 8-yr high of 7.79% in Apr
RBI is likely to raise inflation projections in the MPC meeting next month
NEW DELHI: Retail inflation soared to an eight-year high of 7.79% in April on annual basis mainly because of stubbornly high food prices, remaining above the RBI’s upper tolerance level for the fourth month in a row.
Inflation based on the Consumer Price Index (CPI) was 6.95% in March this year and 4.23% in April 2021.
Inflation in the food basket rose to 8.38% in April from 7.68% in the preceding month and 1.96% in the year- ago month.
RBI has been mandated by the government to ensure that inflation remains at 4% with a margin of 2% on either side of this figure. The retail inflation has remained above 6% since January 2022.
After the off-cycle monetary policy committee (MPC) meetinterest ing of RBI last week,
RBI governor Shaktikanta Das had said the adverse effects of the unprecedented high global food prices due to the ongoing geopolitical situation are reflecting in the domestic market as well, and going forward inflationary pressures are likely to continue.
Earlier this month, the MPC raised the key policy rate (repo) by 40 basis points with an aim to tame the rising inflation. It was the first rate hike after August 2018.
Meanwhile, sources said the central bank is likely to raise inflation projections in the MPC meeting next month and would also consider a rate hike to tame inflation which is above its comfort level.
The RBI is likely to hike the rates in its next meeting in June, when it’s expected to revise up its 5.7% inflation forecast for the current April-March fiscal year.
“They will frontload the hikes,” according to Pankaj Pathak, fixed income fund manager at Quantum Asset Management.
“We should expect more in June and August, after that they may be more careful and watch the inflation trajectory and react,” Pathak said.
High inflation may force the RBI to raise rates by 75 to 100 basis points over the course of the fiscal year, according to Gaurav Kapur, the chief economist at IndusInd Bank Ltd. in Mumbai.
Inflation will likely stay above 6% until September, according to Kapur.
Before the data was released, the rupee dropped as much as 0.5% to 77.6313 per dollar to a record low for the second time this week, before paring losses on possible central bank intervention.
According to Thursday’s release, consumer food prices increased by almost 8.4% while prices of fuel increased by about 11%.