India’s March retail inflation nears 7% y/y, at 17-month high

New Delhi, April 12 (Reuters): India’s retail inflation accelerated to near 7% year-on-year in March, its highest in 17 months and above the upper limit of the central bank’s tolerance band for a third straight month, putting pressure on it to raise policy rates.

Annual consumer price-based inflation (INCPIY=ECI) in March touched 6.95%, pushed by rising prices of fuel products and some food items. The print was higher than the 6.35% year-on-year forecast by economists in a Reuters poll, and 6.07% in the previous month.

Economists said Tuesday’s inflation numbers could prompt the central bank to raise rates as early as June as the next month’s inflation could rise further due to higher retail fuel prices.

“With the MPC (Monetary Policy Committee) having signalled an imminent stance change, the rate hike cycle may begin as early as June, if the next inflation print doesn’t significantly cool off from the March level,” said Aditi Nayar, economist at ICRA.

“We expect to see 50-75 basis points of rate hikes by the end of September,” she added.

Food prices, which contribute to nearly half of the consumer price index (CPI), climbed 7.68% year-on-year in March, compared with 5.85% a month before.

Reuters Graphics Reuters Graphics
Reuters Graphics

The full effect of crude oil price rises on food and other items will be seen in April as the Indian government delayed the pass-through of energy prices to consumers, economists said.

India’s central bank is split between keeping rates low to help revive the pandemic hit economy and controlling the surge in retail prices.

Last week, the RBI said it started to move away from its ultra-loose monetary policy despite the key lending rate at a record low, as its priorities shifted to fighting surging inflation in the wake of the Russia-Ukraine war.

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Source: Reuters