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Retail inflation may surge to 7.5% in April on costly fuel, rising food prices, forecast economists

The economists polled by Moneycontrol point out that core inflation too could show an uptick this time. Food inflation is expected to rise further due to soaring wheat prices around the world in the aftermath of the Russia-Ukraine war

May 12, 2022 / 03:42 PM IST
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Representative image

The Consumer Price Index (CPI) inflation is likely to surge to 7.5 percent in April, with price pressures expected to be broad-based across segments, shows a snap poll of ten economists by Moneycontrol.

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The CPI inflation was at a 17-month high of 6.95 percent in March, and the drivers were fuel and food. “We are expecting 7.2 percent CPI with an upward bias. We won’t be surprised if it comes at 7.5 percent. Inflation is likely to be broad-based with almost every segment showing a rise,” said Madan Sabnavis, chief economist at Bank of Baroda.

The economists point out that core inflation too could show an uptick this time. Food inflation is expected to rise further due to soaring wheat prices around the world in the aftermath of the long-drawn war between Russia and Ukraine. Further, the crop yield is expected to fall owing to an intense and unprecedented rise in summer temperatures across India.

The prices of 13 out of the 22 food items tracked by the Department of Consumer Affairs increased in April from a month earlier. These include wheat at 0.9 percent, sunflower oil at 4.2 percent, tomatoes at 14.4 percent, and milk at 1 percent.

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Food inflation had risen sharply in March to nearly 8 percent. The economists expect it to shoot past 9 percent in April.

Fuel, however, seems to be the biggest threat at the moment. Multiple hikes in domestic fuel prices as well as cooking gas prices are expected to show up in the fuel index. Further, adjustments to electricity tariffs are anticipated in the coming months. Fuel inflation has been cooling off for the past five months but has remained elevated. The month-on-month momentum has been strong. The pass-through of global oil prices onto domestic pump prices has begun in earnest in April.

That leaves us with core inflation, which is the gauge of demand in the economy and an important input for the monetary policy.

Core inflation has historically been sticky and is expected to show upward move. In March, core inflation was 6.4 percent and the economists polled expect this to rise further to 7 percent in April. Note that stickiness in core inflation makes it more challenging for the Reserve Bank of India (RBI).

Core inflation captures the price pressures in services. Services have seen a sharp rise in demand in the recent months as most restrictions related to the pandemic have been relaxed. Discretionary expenditure has seen a jump. All this will reflect in core inflation.



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Moneycontrol News
first published: May 12, 2022 02:51 pm
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