Retail inflation accelerates to 17-monthhigh of 6.95%in Mar
Inflation numbers could prompt the central bank to raise rates as early as June
NEW DELHI: India’s retail inflation accelerated to near 7% year-on-year in March, its highest in 17 months and above the upper limit of the Reserve Bank of India’s (RBI’s) tolerance band for a third straight month, putting pressure on it to raise policy rates.
Annual consumer price index (CPI)-based inflation in March touched 6.95%, pushed up by the rising prices of fuel products and some food items. The print was higher than the 6.35% year-on-year (y-o-y) forecast by economists in a Reuters poll, and 6.07% in the previous month.
Economists said Tuesday’s inflation numbers could prompt the central bank to raise rates as early as June as next month’s inflation could rise further because of higher retail fuel prices.
“With the MPC (Monetary Policy Committee) having sigprice nalled an imminent stance change, the rate hike cycle may begin as early as June, if the next inflation print doesn’t significantly cool off from the March level,” said Aditi Nayar, economist at ICRA.
“We expect to see 50-75 basis points of rate hikes by the end of September,” Nayar said.
Food prices, which contribute to nearly half of CPI, climbed 7.68% y-o-y in March, compared with 5.85% a month before.
The full effect of crude oil rises on food and other items will be seen in April as the Indian government delayed the pass-through of energy prices to consumers, economists said.
India’s central bank is split between keeping rates low to help revive the pandemic hit economy and controlling the surge in retail prices.
Last week, RBI said it started to move away from its ultraloose monetary policy despite the key lending rate at a record low, as its priorities shifted to fighting surging inflation in the wake of the Russia-Ukraine war.
The price rise was sharper in rural India than in urban. CPI for rural India surged to 7.66% in March from 6.38% in the previous month.
Data on CPI inflation is released every month by the National Statistical Office (NSO), the Union ministry of statistics and programme implementation.
The price data are collected from selected 1,114 urban markets and 1,181 villages covering all states and Union territories through personal visits by field staff of the field operations division of NSO, on a weekly roster.
During March 2022, NSO collected prices from 99.9% of villages and 98.3% urban markets while the market-wise prices reported therein were 90.2% for rural and 93.2% for urban, according to an official statement released by NSO.