At 7.79%, India’s retail inflation rises to 8-year high in April
NEW DELHI: India’s consumer inflation surged to an eight-year high of 7.79% in April, 2022, breaching the Reserve Bank of India’s (RBI) so-called tolerable limit of 6% for the fourth straight month, official data Thursday showed. Food inflation, which is driving the rise in retail inflation, rose by 8.38%, the highest so far in this fiscal.
The continued surge in shop-end prices will pile more pressure on the RBI to act more aggressively to check inflationary pressures, which have squeezed average household budgets.
According to the latest inflation numbers, overall retail prices rose higher in rural India (8.38%), while in urban India, they rose 7.09%. Food prices too increased faster in the countryside at 8.5%, compared to 8.09% in urban areas.
Rising consumer inflation has increased the cost of living for average Indians, who are paying higher prices for a range of commodities, from fuel, electronics and transport to basic food items.
On April 15, HT reported that runaway prices have prompted middle-class households to ‘downtrade’ their purchases, meaning they are buying smaller packages or cheaper substitutes of everyday items to save costs.
Hammered by rising prices, households have cut spending on daily items, from tubes of toothpaste to soaps, as slackening demand slows sales of some of India’s biggest consumer-goods companies.
Retail inflation in March rose by 6.95%, while in February, it had risen 6.07%. The latest jump in prices is higher than what most analysts expected.
The government collects retail price data from selected 1,114 urban markets and 1,181 villages covering all states to gauge retail inflation, which has a direct impact on people’s income and economic growth.
A rise in food prices relatively hurts poor households more because low-income households spend a larger share of their monthly budget on food. Cereals rose 5.96% as a heatwave in March crimped at least 5.7% of wheat output from 111 million tonne forecast in Feb to 105 million tonne, according to revised estimates of the government.
The Russian invasion of Ukraine and the US Fed’s withdrawal of the easy money policy have had a bearing on domestic prices in India.
The Black Sea conflict, along with Indonesia’s ban on cooking palm oil exports, quickened inflation in fats and oils to a record 17.28%, Thursday’s data showed. India meets two-thirds of its edible oil demand through imports. Vegetable prices rose 15.41% from a year ago against an increase of 11.64% in the previous month, while proteins fell to 6.97, against a rise of 9.6% in March.
Global shocks plunged the Indian rupee to a record new low Thursday, as worries of runaway inflation mount. A falling rupee increases inflation by making imports costlier, which is likely to put more pressure on the central bank to stem the currency’s sliding value.
The rupee fell 0.5% to 77.6313 per dollar on Thursday. That’s a new record low for the second time in a week. The rupee gained marginally thereafter as the central bank stepped in with some measures. Stocks tumbled too as the benchmark Sensex Index fell 1.8%, a two-month low.
The RBI raised the repo rate by 40 basis points to 4.49% last week indicating a clear turn by the central bank towards taming rising inflation in the country. The repo rate refers to the rate at which commercial banks borrow money by selling their securities to the Reserve Bank, while the reverse repo rate is the rate at which the central bank borrows money.
These rates are key to boosting credit and investments by businesses in the economy as India pushes its nascent economic recovery.