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‘High food prices may fuel inflation up to 7.7% in April’

Geopolitical tensions, heat wave impacting food prices, especially of wheat, along with an overall increase in transportation costs due to fuel price hike have added to the surge in inflation rate, which had risen to a 17-month high of 6.95 per cent in March.

food prices, food inflation, Reserve Bank of India, consumer price index, CPI inflation, Business news, Indian express business news, Indian express, Indian express news, Current AffairsThe RBI on Wednesday hiked repo rate by 40 basis points amid worries over domestic food prices given their sensitivity in India’s political economy. T

Amid an out-of-turn hike in key policy rate and a surge in inflation flagged by the Reserve Bank of India (RBI), retail inflation based on Consumer Price Index (Combined) is likely to have risen up to 7.7 per cent in April on the back of rise in food prices and the full pass-through effect of fuel price hike coming into play, economists said.

Geopolitical tensions, heat wave impacting food prices, especially of wheat, along with an overall increase in transportation costs due to fuel price hike have added to the surge in inflation rate, which had risen to a 17-month high of 6.95 per cent in March.

Bank of Baroda has estimated inflation for April at 7.2 per cent, while India Ratings estimated inflation to have risen to 7.25-7.5 per cent. ICRA’s estimates the April print to be 7.4 per cent, while Barclays estimates inflation to have risen to 7.5 per cent and State Bank of India sees it at around 7.5-7.7 per cent.

“We expect food inflation to rise to 7.8% in April, which would be the highest print in 17 months, from 7.5% in March. Despite prices of several key items like some vegetables and pulses moderating, this was likely offset by further rises in the prices of cereals, meat and fruits in April. Higher feed costs are also likely pushing up the prices of chicken and milk. Unsurprisingly, a lot of the sequential increases are likely being driven by edible oil prices, which continued to trend higher in April, and are set to rise further in May given Indonesia’s recent ban on edible oil exports,” Rahul Bajoria, Chief India Economist, Barclays said.

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“At the same time, both cooking gas and kerosene prices increased sharply in April. Revisions in electricity tariffs also likely pushed up power costs in some states, though a planned reduction in tariffs in Punjab should provide some relief in coming months. We expect this trend to continue through the year, as many state governments implement proposed power price revisions to support the distribution companies, under the union government’s reform directive,” Bajoria added.

Going ahead, economists said the price trajectory will be mainly dependent on how long the Russia-Ukraine conflict lasts. “A monetary tightening is being seen across the globe. Inflation has turned structural in segments such as health. Also, the second round impact of fuel price hike will push up inflation. It depends a lot on how long the global uncertainty continues,” Devendra Kumar Pant, Chief Economist, India Ratings said.

For the whole financial year, economists expect the inflation rate to be higher than 6 per cent, which is over the upper band of the medium-term inflation target of the RBI. “Food prices and generalised increase in prices will lead to higher inflation. The print in May is likely to soften due to a high base effect but for the whole fiscal, we estimate it to be higher than 6 per cent,” Aditi Nayar, Chief Economist, ICRA said.

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The RBI on Wednesday hiked repo rate by 40 basis points amid worries over domestic food prices given their sensitivity in India’s political economy. The RBI indicates that high frequency price indicators for April indicate the persistence of food price pressures. Simultaneously, the direct impact of the increases in domestic pump prices of petroleum products – beginning the second fortnight of March – is feeding into core inflation prints and is expected to have intensified in April.

First published on: 07-05-2022 at 01:02:17 am
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