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Wednesday, April 21, 2021

Retail inflation likely rose in March but stayed within target

The April 5-8 poll of more than 50 economists showed retail inflation rose to 5.40% in March from a year earlier as opposed to 5.03% in February. Forecasts ranged from 4.60% to 6.11%.

By: Reuters | Bengaluru |
Updated: April 12, 2021 10:18:29 am
inflation, food inflationVegetables are on display at a fruits and vegetable stand (Image: REUTERS)

India’s retail inflation edged up to a four-month high in March, led by an increase in food and fuel prices, but remained within the Reserve Bank of India’s target range, a Reuters poll predicted.

The April 5-8 poll of more than 50 economists showed retail inflation rose to 5.40% in March from a year earlier as opposed to 5.03% in February. Forecasts ranged from 4.60% to 6.11%.

“Although India’s core inflation has remained elevated for a while, the recent acceleration in headline inflation largely reflects higher food prices,” said Tuuli McCully, head of Asia-Pacific economics at Scotia Bank.

“I expect the pickup to be a temporary phenomenon, yet there are significant risks surrounding the inflation outlook.”

The RBI raised its inflation projection for the first half of this fiscal year to 5.2% on Wednesday, still within the RBI’s target range of 2%-6%.

“With some cities already under COVID-19 lockdown and maybe more facing the same risk, the panic-buying like a year ago may set in to pressure inflation further up in the months ahead,” said Prakash Sakpal, senior Asia economist at ING.

The RBI kept the key repo rate at record low 4.0% and its monetary policy accommodative amid concerns of rising COVID-19 cases that could derail the nascent recovery.

Asia’s third-largest economy grew 0.4% in the Oct-Dec quarter after contracting for two consecutive quarters, its deepest recession in about four decades.

India reported a record 126,789 COVID-19 cases on Thursday and a few states have renewed restrictions to contain the spread while complaining of vaccine shortages and demanding inoculations for younger people.

A separate Reuters poll last week predicted the biggest risk to economic growth was a surge in coronavirus cases and that the central bank would keep rates on hold this fiscal year.

“The RBI will continue to see through elevated inflation and focus on supporting growth at least until the COVID-19 risk is firmly behind,” added Sakpal.

The latest poll also predicted industrial output contracted 3.0% during February from a year earlier.

Infrastructure output, which accounts for about 40% of total industrial production and comprises eight sectors, contracted 4.6% in February.

Production of all eight core industries – including coal, crude oil, natural gas, petroleum refinery products, fertilizers, steel, cement and electricity – shrank in February.

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