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Inflation At 8-Year High: Know What Propelled It In April, What Lies Ahead

Remaining Above the Reserve Bank of India’s (RBI) target limit for the fourth consecutive month, the retail inflation in the country hit an eight-year high of 7.79 per cent in April led by high food prices. Rural inflation in April stood at a 12-year high of 8.4 per cent, while inflation in urban areas was at an 18-month high of 7.1 per cent in April 2022. Here’re the latest inflation numbers and what led them to rise so high and what lies ahead:

The Latest Inflation Numbers

The Consumer Price Index (CPI)-based inflation, which the RBI takes as a reference point while deciding on the monetary policy, in April 2022 soared to an eight-year high of 7.79 per cent. It is as compared with 4.23 per cent in April 2021 and 6.97 per cent in March 2022.

Core inflation, which excludes changes in food and oil prices, in April also touched a 95-month high at 6.97 per cent. It has remained over 5 per cent for 24 consecutive months. Inflation in the food basket rose to 8.38 per cent in April, from 7.68 per cent in the preceding month and 1.96 per cent in the year-ago month.

What Propelled The Retail Inflation In April?

The retail inflation number in April remained high due to the low base effect, worsened by price jumps across all major commodity groups. The inflation in April 2021 had stood at 4.23 per cent.

Inflation in cereals and products in April jumped to a 21-month-high level; vegetables at a 17-month high; and spices at a 17-month high. Consumer food price inflation rose to 8.38 per cent, which is a 17-month high.

High fuel prices in April also kept the inflation print at an elevated level. “Second round impact of higher fuel prices has started reflecting on other goods and services also. Inflation for miscellaneous goods and services jumped to 115 months high to 8.03 per cent, 23 consecutive months of more than 6 per cent inflation,” India Ratings said in its commentary.

PHDCCI President Pradeep Multani said the escalation in the CPI inflation to 7.79 per cent in April 2022 is stoked by high energy and food prices viz-a-viz uncertainty caused by geopolitical conflict.

What Is Expected Ahead?

The retail inflation this financial year is expected to remain high at around seven per cent, against the RBI’s target of 5.7 per cent for FY23, according to experts. The central bank’s target limit of 2-6 per cent.

“April headline inflation print is likely to be the peak for the year. However, we do not expect inflation to go below 6 per cent for the rest of the year with prints over the next few months remaining around 7-7.5 per cent,” Suvodeep Rakshit, senior economist at Kotak Institutional Equities, said.

India Ratings said that based on the present trend, average inflation in FY23 is likely to be closer to seven per cent and may peak in September 2022, thereafter declining marginally. The RBI has increased the repo rate by 40 basis points (bps) and cash reserve ratio (CRR) by 50 bps in May 2022. A basis point is equal to the 100th of a percentage point.

The experts also said the price moderation in crude and some commodities as a fallout of tightening liquidity and increased credit costs is also expected to play a role in inflation moderation in the near term.

DSP Mutual Fund also said the RBI’s inflation expectation of 5.7 per cent for the current financial year is likely to be revised upwards in the June policy. The latest reading “is likely to mark the peak statistically but H1 inflation could remain well above 6 per cent.”

Knight Frank India Director (Research) Vivek Rathi said, “The sooner the geopolitical tension on account of (the Russia-Ukraine) war and trade sanctions ease, better it will get for global economic growth and price stability.”

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