RETAIL INFLATION SPIKE MIGHT MAKE RBI REVISIT FOCUS ON GROWTH RISKS

Retail inflation spike in May might cause the Reserve Bank of India (RBI) to “revisit its focus on growth risks”, global forecasting firm Oxford Economics said on Tuesday, adding that a rate hike is still unlikely this year.

It added that the underlying dynamics of the May inflation print augur caution and the recovery remains on uncertain ground and with fiscal support in retreat, the RBI will likely be hesitant to remove policy accommodation anytime soon.

“Consumer inflation spiked in May... This may cause the RBI to revisit its focus on growth risks. Still, we think a rate hike is unlikely this year,” Oxford Economics said.

The forecasting firm said that given the evidence from last year, when supply side disruptions had led to an unanticipated spike in inflation, such developments may partly be attributed for the inflation pick-up in May.

“However, as we have highlighted, the 2021 lockdowns are not as stringent; and have allowed for greater movement of people, goods and vehicles. This suggests that other factors are at play as well,” it said.

According to Oxford Economics, indeed, the April industrial production growth print surprised to the upside.

“Positive base effects notwithstanding, industrial production grew 1.1% month-onmonth seasonally adjusted in April after rising 2.2% in March. This was led by continued expansion of manufacturing output,” it said.