April inflation print will reflect the hike in domestic fuel prices which had been frozen after November last year. Food prices are also likely to climb up with vegetables and edible oil prices rising.
This would be the fourth straight month in which the retail inflation will breach RBI‘s comfort zone of 2-6% and spur more rate hike decisions in future.
“CPI inflation appears to have surged higher still in April on the back of higher food and fuel prices. The bulk of the impact of the recent fuel prices hikes will be felt in April,” said Shilan Shah, senior India economist at Capital Economics.
“We wouldn’t be surprised if core inflation has risen too. The risk is that sustained higher inflation drives up inflation expectations, which push core inflation even higher.”
The RBI, which raised the repo rate by 40 basis points recently in an off-policy decision, is expected to raise its inflation projections and hike policy rates further in its June meet.
The depreciation in rupee is another major worry as it would make India’s energy imports expensive and fuel inflation. The risk of imported inflation has only gone up with rupee plunging to record levels.
Higher inflation will discourage consumer spending, which is key for India’s economi revival.
The MPC, headed by the RBI Governor, is scheduled to meet between June 6 and June 8. It has been mandated to keep retail inflation in the range of 2-6 per cent.
American brokerage Morgan Stanley on Wednesday cut its India growth estimate by 30 basis points for 2022-23 and 2023-24 on global headwinds, and warned that macro stability indicators like inflation are set to “worsen” going ahead.
According to sources, tightening of policy rates by major central banks, including the RBI, would adversely impact demand in the next 6-8 months and slow down the recovery process.
Besides the Reserve Bank of India (RBI), several central banks including the US Federal Reserve and Bank of England have hiked their benchmark lending rates to rein in inflation, which has been exacerbated by the Russia-Ukraine conflict.
(With inputs from Reuters, PTI)