Recovering economy faces inflation threat

NEW DELHI: Retail inflation rose to 6.3% in May from 4.23% in April, propelled by an increase in both food and core inflation, going beyond the Reserve Bank of India’s upper comfort level of 6% for the first time since November, and suggesting that the incipient recovery in the economy may run into some headwinds. Experts say that inflation could continue to remain a challenge through the rest of the year. Wholesale inflation, meanwhile, rose to 12.94%,the highest in at least nine years, from 10.49% in April, partly on account of a low base (last May), but also because of higher fuel prices.

The inflation data comes even as the bruising second wave of Covid-19 ebbs in India, and the unlock process with respect to movement and activities continues. The Nomura India Business Resumption Index (NIBRI) jumped to 76 in the week ending June 13 from 67.9 the previous week. This is the highest weekon-week improvement in NIBRI since February 9, 2020. A NIBRI of 100 indicates pre-pandemic level of business activities.

The faster-than-expected inflationary surge, primarily driven by fuel prices and increase in prices of important food items such as edible oil and pulses, has the potential to squeeze both household and business incomes. The impact could be particularly severe on the poor, who are already in dis

Tough balancing act

tress. That the inflation metrics are high is worrying experts because demand remains low. As demand rises, inflation may, too, and RBI may find itself in a quandary in choosing between keeping growth going or reining in inflation. For the government, the numbers pose both an economic and a political challenge.

“CPI inflation is 6.3%. Do you want to know why? Fuel and power inflation is at 37.61%. Thanks to PM Modi raising petrol and diesel prices every day. Food inflation is at 6.3%... Pulses inflation is at 9.39%. Edible oil inflation is at 30%. These are high marks for competent economic management,” Congress leader P Chidambaram said.