Feeling the pressure of retail inflation

Inflation based on the consumer price index (CPI) accelerated to 7.79% in April from 6.95% in March, driven by expensive food and a fuel price pass-through. The consumer food price index climbed to 8.38% in April from 7.68% a month ago, with edible oils and vegetables rising the fastest. These two groups have a combined weight of 11.67% in the CPI, and although vegetable prices fluctuate seasonally, edible oils are likely to face inflationary pressure till domestic production rises in response to the import disruption caused by the Russia-Ukraine conflict. Inflation in the rest of the food basket, which constitutes slightly over half of the CPI, is within manageable limits.

Fuel and transport, which make up 15.54% of the index, saw inflation in excess of 10% during April. This was the month that oil refiners started increasing prices of transport and cooking fuel after a four-month hiatus since November 2021. Retail fuel prices have not captured the full extent of crude oil and natural gas price escalation since hostilities threatened supplies from Russia, among the world’s top exporters of both. Rising input and transportation costs are also showing up in manufactured items used by households, with inflation rates outrunning the CPI. But their effect is dampened by the low weights ascribed to these in the household consumption basket. This impact will be seen in wholesale inflation.

The other data set released on Thursday shows industrial output growing by 1.9% in March from the same month a year ago. This was a blip against the 11.3% growth in 2021-22. The industrial machine stalled with the outbreak of war in Europe as commodity prices and cargo haulage rates surged. Manufacturing output grew by less than 1% during March, which will be an area of concern for making credit more expensive for industry. But with retail inflation above the Reserve Bank of India‘s (RBI) tolerance band for four months running, and with no immediate respite in sight, the central bank may have to press the pedal on rate hikes.

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