‘Inflation will take time to moderate even after rate hikes’

Amidst the continued rise in inflation, it is now almost certain that the Reserve Bank of India (RBI) will raise key policy rates in the June and August policy review meetings, thereby taking it to the pre-pandemic level of 5.15 per cent by August 2022, said SBI Research in a report, adding that even after the rate hikes, inflation will take time to moderate in India.

Inflation continues to be a bugbear and it looks unlikely that it will subside anytime soon.

The latest inflation numbers reveal that while in the rural areas, the impact has been disproportionately higher on food prices, in urban areas it is disproportionately higher as far as fuel price impact and passthrough is concerned since the war in Ukraine began.

SBI Research did a dipstick study to understand the impact of the war on the inflation trajectory in both the rural and urban areas.

Using February as the base case -- the beginning of the

Ukraine and Russia conflict - the study reveals that because of the war alone, food and beverages, and fuel and light & transport contributed 52 per cent of the increase in overall inflation.

"If we also add the impact of input costs particularly on the FMCG sector, thus adding the contribution of personal care and effects, the total impact at all-India level comes to 59 per cent, purely because of war," the report said.

However, the important challenge facing the central bank remains whether inflation will tread down meaningfully because of such rate hikes if war-related disruptions do not subside quickly.