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What to expect from April consumer inflation

India's central bank increased a key interest rate on May 4, eight days ahead of the release of April's retail inflation data. What will the number look like?

May 12, 2022 / 09:22 AM IST
Representative image

Representative image

One has to strain to remember the last time the release of retail inflation data was so eagerly awaited.

The statistics ministry is scheduled to release Consumer Price Index (CPI) data for April at 5:30 PM IST on May 12. And the ground for the number has already been set by Reserve Bank of India Governor Shaktikanta Das.

In his statement on May 4, when the central bank increased the key interest rate for the first time in almost four years, Das said retail inflation for April is "expected to be elevated," having hit a 17-month high of 6.95 percent in March.

What does this mean?

8 percent calling?


Some economists see retail inflation for April likely coming in at about 7.5 percent, while others expect a figure closer to 8 percent.

"We expect April's CPI inflation to rise further to 7.7 percent (market consensus at 7.5 percent) from 6.95 percent in March," Kotak Mahindra Bank said in a note on May 9, adding that food prices had seen a "sharp sequential pickup."

Kotak Mahindra Bank sees food inflation surging to 9.3 percent in April from 7.7 percent in March.

The prices of 13 of the 22 food items tracked by the Department of Consumer Affairs increased in April from a month earlier. These include wheat (0.9 percent month-on-month increase in price), sunflower oil (4.2 percent), tomatoes (14.4 percent), and milk (1.0 percent).

Items that registered a sequential decline in prices include rice (0.6 percent), gram, tur, urad, and masoor dal (0.3-1.1 percent), and onions (19.7 percent), according to data from the Department of Consumer Affairs.

"Despite prices of several key items like some vegetables and pulses moderating, this was likely offset by further rises in the prices of cereals, meat and fruits in April," Barclays' economists said in a report last week. "Higher feed costs are also likely pushing up the prices of chicken and milk. Unsurprisingly, a lot of the sequential increases are likely being driven by edible oil prices, which continued to trend higher in April, and are set to rise further in May given Indonesia's recent ban on edible oil exports."

Five of the six edible oils on which the consumer affairs department gathers data showed significant month-on-month pick up in prices, ranging from 1.7 percent to 4.2 percent, with only mustard oil posting a decline of 1.3 percent.

Fuel hell

The main culprit, unsurprisingly, is set to be fuel.

The average pump price of petrol in India's top four metropolitan cities rose 8.6-9 percent in April from a month earlier, while diesel prices were up 8.8-9.7 percent, according to data from the Petroleum Planning & Analysis Cell, a division of the Ministry of Petroleum & Natural Gas.

"Both cooking gas and kerosene prices increased sharply in April. Revisions in electricity tariffs also likely pushed up power costs in some states, though a planned reduction in tariffs in Punjab should provide some relief in coming months. We expect this trend to continue through the year, as many state governments implement proposed power price revisions to support the distribution companies, under the Union government's reform directive," Barclays added.

In March, the fuel and light group index of the CPI had risen by 0.9 percent month-on-month, producing an annual inflation of 7.5 percent – a figure that is set to be exceeded in April.

Core pressures

Perhaps more important than food and fuel inflation will be core inflation.

Seen as an indicator of underlying demand, core inflation – or inflation excluding food and fuel – jumped to 6.4 percent in March from 6 percent in February. Economists see core inflation close to 7 percent in April.

The 'miscellaneous' group, which accounts for 28 percent of the CPI and includes services, will be a key item to keep an eye on. In March, miscellaneous inflation rose to a nine-month high of 7.02 percent. And price pressures rose rather sharply in April.

According to S&P Global's Purchasing Managers' Index survey for India's services sector, the rise in operating expenses for service providers in April from March was the second-strongest since data began to be collected in December 2005. Unsurprisingly, consumers were passed on some of the burden, with inflation for service charges rising to the highest in almost five years in April.

Failure imminent?

CPI inflation may ease after April but it looks unlikely it will cool enough for the Monetary Policy Committee (MPC) to avoid failure. If average inflation goes beyond the target band of 2-6 percent for three consecutive quarters, the RBI must explain to the government why it failed and the remedial action it will take to bring inflation back to acceptable levels. To avoid breaching its mandate, the committee may increase rates further.

"We expect hikes to be frontloaded with a 60-basis-point hike at the June MPC meeting, followed by 50-basis-point moves in August and October, and 25-basis-point hikes at each meeting thereafter until June 2023," BNP Paribas wrote last week.

Those rate hike bridges can be crossed when the MPC comes to them. For now, it must be waiting – if it does not know already – for what May 12 will bring.

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Siddharth Upasani
first published: May 11, 2022 02:21 pm
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