Tariff hikes by telcos likely to fuel FY25 inflation by 10-15 bps

Tariff hikes can raise FY25 inflation

India's inflation rate is set to climb as telecom companies emerge from a bruising three-year price war. Telcos have raised tariffs by 10-27 percent, a move experts anticipate could nudge overall inflation up by 10-15 basis points.

“The impact will be sharp and will pose an upward bias to core inflation. And as they (telecom tariffs) do not come down, the impact will be seen for a full one-year cycle,” said Madan Sabnavis, chief economist at Bank of Baroda.

Telecom charges for mobile phones jumped 8.9 percent in July compared with a 1 percent rise in the previous month.

The category has a 1.84 percent weight in the inflation basket.

India’s inflation hit a 59-month low of 3.5 percent in July, compared with 5.1 percent in the previous month, given a favourable base effect from the previous year. Inflation was a high 7.44 percent in July 2023.

While prices across categories remained depressed, core inflation, which considers prices of goods and services without food and fuel, had risen to 3.4 percent from 3.1 percent a month back, as per Moneycontrol calculations. This marks the first rise in core inflation in 14 months.

Data shows that it is not just the telecom tariffs, but internet expenses too have increased. Internet expenses shot up 2.6 percent in July from 0.9 percent in June. It, however, has a negligible 0.08 percent share in the consumer basket.

Higher than before

Rising core inflation adds to concerns that food inflation will remain high for the better part of the year as well. Economists are worried that higher food inflation can upend the inflation projections by the Reserve Bank of India and force a rate cut further into the future.

Some economists have started delaying their rate cut expectations to 2025 or to the next fiscal.

In fact, in the August 19 monthly bulletin released, researchers at the central bank argued for a cautious monetary approach amid rising prices.

The central bank’s Monetary Policy Committee (MPC) decided to hold the key policy rates for the ninth consecutive time at its August review meeting and kept the inflation forecast unchanged at 4.5 percent for FY25. In fact, some economists have moved their forecast up to 4.7 percent.