Food Inflation – Consumer Price Index at highest since 2014 – worse than expected

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Economists said April’s inflation figures were not only higher than March, but also above their expectations of 7.5%. As core inflation rose to 7.0% from 6.4% in March, the repo rate raised on June 8 is seen as a possibility. “This is certainly not good news. And it makes possible another aggressive rate hike by RBI in June. Right now we are calling for a 45 basis point hike at the June policy meeting, but I wouldn’t be surprised if there’s a bigger increase than what’s contemplated at this point given the extremely ugly numbers we have in front of us today,” another major bank economist said. from the private sector.

The upward trend in the path of inflation is expected to continue with at least three consecutive quarters of CPI inflation remaining above 6%. And if that happens, in about four months, the Monetary Policy Committee is mandated to write to Parliament explaining the reasons. “The next six or more readings appear to be closer to around seven percent. More, or less a bit, which is really uncomfortable I would say,” said another analyst adding that the descent was going to be quite slow and long.

Rating agency CRISIL summed up the situation and said India’s economy may have won the rounds against COVID-19, but now there is a new opponent in the ring – rising prices – which threatens to deliver a punch. “Such persistent inflation, including the rising core share, is expected to become the biggest obstacle to India’s economic recovery this fiscal year. CPI-linked inflation may have spent three years in the past. above 4%, the midpoint of the target range set by the Reserve Bank of India (RBI), but it is expected to spread to most goods and services this fiscal year, reaching a worrying 6.3% in during fiscal year 2023,” the rating agency said.

April also marked the fifth consecutive month in which growth in the Industrial Production Index (IPI) was below 2%. Output from power generation and mining rose 6.1% and 4.5%, respectively. Production of durable consumer goods continued to contract for the sixth consecutive month. The sector contracted by 3.2% in March, just as the production of non-durable consumer goods fell by 5%, for the third consecutive month.

Promising areas are infrastructure and construction goods which grew by 7.3%, while primary goods rose by 5.7%. Production of capital goods and intermediate goods rose only 0.7% and 0.6%, respectively, marking the slowest pace of growth for capital goods in three months. This prompted Sabnavis to comment that the disappointing numbers indicate that the investment cycle has yet to kick off and should only be delayed due to the war and prevailing uncertainties.


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