It has been reported by a Reuters poll that India’s retail inflation had edged up to a four-month high in March, with manufacturing hitting 7 months low. The spike in retail inflation was led by an increase in food and fuel prices, but it technically remained within the Reserve Bank of India’s target range.
The poll conducted by Reuters showed that retail inflation had risen to 5.40% in March from a year earlier, up from 5.03% recorded in February.
Tuuli McCully, head of Asia- Pacific economics at Scotia Bank stated that “Although India’s core inflation has remained elevated for a while, the recent acceleration in headline inflation largely reflects higher food prices,”. He additionally added that “I expect the pickup to be a temporary phenomenon, yet there are significant risks surrounding the inflation outlook.”
It is to be noted that a recent survey by Moody’s analyst too projected India’s inflation to be at an “uncomfortably” high level even when the inflation remained subdued in most neighboring Asian economies.
The mere reason for the increase in the retail prices was found to be increasing fuel prices in the economy. According to Moody’s Analytics, a financial intelligence company, higher fuel prices had supposedly kept upward pressure on retail inflation.
This Wednesday, the RBI had raised its inflation projection for the first half of this fiscal year to 5.2%, still within the RBI’s target range of 2%-6%.
Prakash Sakpal, senior Asia economist at ING stated that “With some cities already under covid 19 lockdown and maybe more facing the same risk, the panic-buying like a year ago may set in to pressure inflation further up in the months ahead,”.
The RBI recently kept key repo rate at record low 4.0% to continue its monetary policy accommodative stance amid concerns of rising COVID-19 cases that could derail the nascent recovery.
Asia’s third-largest economy came out of its recessionary phase as it grew 0.4% in the October December quarter after contracting for two consecutive quarters.
It was reported on Thursday that India had recorded a total of 126,789 COVID-19 cases and a few states had renewed night curfews to contain the spread while additionally complaining about the vaccine shortages and demanding inoculations for younger people.
Last week, a separate Reuters poll had predicted that the biggest risk to the economic growth was a surge in coronavirus cases and that the central bank would keep rates on hold this fiscal year. A recent prediction by the IMF, which predicted India’s economy to grow by a significant 12.5% was refuted by many experts stating the health crisis as the biggest threat to the recovery and growth.
Skpal added that “The RBI will continue to see through elevated inflation and focus on supporting growth at least until the COVID-19 risk is firmly behind,”.
Additionally it has been reported that the infrastructure output, which accounts for about 40% of total industrial production and comprises eight sectors, contracted 4.6% in February.
Production of all eight core industries – including coal, crude oil, natural gas, petroleum refinery products, fertilizers, steel, cement and electricity – shrank in February.