Retail Inflation: According to data released by the National Statistical Office on Thursday, consumer inflation in India accelerated to an almost eight-year high of 7.8% in April, up from 6.95 percent in March, with rural inflation rising to 8.4% and urban shoppers seeing a nearly 1% month-on-month increase to 7.1 percent.
Inflation measured by the Consumer Food Price Index (CFPI) jumped to a 17-month high of 8.4 percent in April, up from 7.7 percent in March. In rural India, food prices increased at a faster rate of 8.5 percent.
This is the fourth month in a row that retail inflation has remained above 6%, the monetary policy framework’s upper tolerance threshold for inflation. Economists said the central bank’s haste to raise interest rates in an off-cycle meeting last week was explained by the sharp acceleration in retail inflation, and that the move was likely to be backed up by another rate hike in the next policy review next month.
Retail Inflation is at eight year high
“India’s April 2022 CPI inflation turned out to be a 95-month high of 7.8%, driven by continued global crude price rises that impact food, fuel and light, and transport and communication prices in the CPI basket,” said EY India chief policy advisor D.K. Srivastava. “CPI inflation was at 8.3 percent in May 2014,” he recalled.
According to India Ratings economists Sunil Kumar Sinha and Paras Jasrai, rural inflation was at an eight-year high, with several items reporting the highest levels in a long time. Miscellaneous goods and services (at a 115-month high of 8.03 percent) and education (at a 23-month high) were among them. They noted that health-care inflation was becoming structural, having remained above 6% for the past 16 months.
Food Beverage inflation at record high
Food and beverage inflation, which accounts for 46% of the overall Consumer Price Index (CPI), increased to 8.1 percent in April from 7.47 percent in March, driven primarily by a jump in vegetable inflation to 15.4 percent from 11.6 percent in March. The rate of increase in oil and fat prices slowed slightly to 17.3 percent in April, down from 18.8 percent in March. Inflation in meat and fish fell to around 7% in April, down from 9.63 percent the previous month.
Food inflation was significant at 8.4% because cereal inflation was high due to higher wheat prices, according to Bank of Baroda chief economist Madan Sabnavis, who blamed increased diversion of grain for exports for the country’s shortages.
Transport and Communication inflation, which includes gasoline prices, soared to 10.9 percent, up nearly 300 basis points from the previous month’s figure of 8%.
Government needs to reduce Taxes
Mr. Srivastava suggested that the government could use the extra fiscal capacity reflected in higher GST collections in April and a 49 percent increase in direct tax collections in 2021-22 to reduce central excise duty rates on petroleum products in order to contain inflation. Mr. Sabnavis agreed that the government needed to reduce taxes and duties to relieve price pressures.
Clothing and footwear costs continued to be a source of frustration for consumers, with combined inflation of 9.85 percent in April, up from 9.4 percent in March, with footwear prices up 12.12 percent and clothing costs up 9.5 percent. Mr. Sabnavis believes that prices of manufactured goods like personal care and household goods are unlikely to fall anytime soon.
ICRA chief economist Aditi Nayar observed that April’s retail inflation figure significantly exceeded the agency’s 7.4 percent estimate. “The headline figure was pushed up by a sharp but expected increase in food inflation, despite core inflation printing at a rather unpleasant level.” “The negative surprise was largely due to miscellaneous items, such as fuel and light, as well as clothing and footwear, raising the specter of a generalisation of inflationary pressures,” she explained.
Among the States, West Bengal and Madhya Pradesh recorded a much higher inflation rate than the national average, at 9.1 percent, closely followed by Telangana and Haryana which reported inflation of about 9 percent. Kerala (5.08%) and Tamil Nadu (5.37%), on the other hand, had the lowest inflation rates in April.
While Ms. Nayar of ICRA expects inflation to slow in May due to base effects, she believes it will remain above 6.5 percent. “The early data for May 2022 revealed a continued sequential uptrend in the average prices of edible oils, atta, and wheat, reflecting the fallout of global supply disruptions caused by geopolitical conflict, including Indonesia’s ban on palm oil exports.” Furthermore, average prices of some vegetables, such as tomatoes, potatoes, ginger, iodized salt, and fruits, such as apples and papayas, have increased,” Ms. Nayar noted.