Spiralling Food Prices Likely Pushed Inflation To 16-Month High In March, Says Report

The reading, 6.35 per cent, is actually well above the Reserve Bank of India’s upper tolerance band for a third straight month, mostly because of sustained rise in food prices

Food prices, which account for nearly half the inflation basket, are expected to remain elevated as supply chain problems due to the Russia-Ukraine war. Image: Getty

New Delhi: A poll conducted by Reuters found that retail inflation in India likely sped up to a 16-month high of 6.35 per cent in March.

The reading is actually well above the Reserve Bank of India’s (RBI’s) upper tolerance band for a third straight month, mostly because of sustained rise in food prices.

According to the report, the full effect of the spike in crude oil and global energy prices amid the Russia-Ukraine conflict in late February is not expected to appear in consumer prices until April as the pass-through to consumers at fuel pumps was delayed.

According to the poll, which was conducted between April 4 and April 8, 48 economists suggested inflation, as measured by the consumer price index (CPI), rose to 6.35 per cent in March on an annual basis, from 6.07 per cent in February. That would be the highest reading since November 2020.

Dhiraj Nim, an economist at ANZ, referring to the seasonal pattern in monthly changes in food prices, said, “We expect headline inflation to have accelerated to 6.30 per cent year-on-year (YoY) as food prices edged higher in sequential terms after a three-month decline until February,” said

Food prices, which account for nearly half the inflation basket, are expected to remain elevated as supply chain problems related to the Russia-Ukraine war disrupt global grain production, supply of edible oils, and fertiliser exports.

Palm oil prices also aored nearly 50 per cent this year. Food price rises are sharply felt by millions living below the poverty line who have already taken a hit on jobs and incomes due to the pandemic.

Samiran Chakraborty, chief economist for India at Citi, said global commodity price rises will turn up in the March inflation numbers, as well as edible oils.

"Although there was a delay in the start of petrol price hikes post-state elections, retail prices have still risen by Rs 6.5 per litre over the last 10 days of March," Chakraborty said.

The RBI, however, has opted to leave interest rates steady even as inflation has crept well above its target and shows no signs of abating any time soon.

The central bank on Friday again left its key repo rate unchanged at a record low. However, analysts are beginning to show concern that the right time to have begun raising interest rates may have already passed.

Kunal Kundu, India economist at Societe Generale, said, “They (RBI) are well behind the curve. What the Fed actions have shown us is that the moment you get to know you were wrong about inflation being transitory, you are forced to act in a more aggressive way."