Retail price inflation in March experienced the highest monthly rattle in 17 months at 6.95%. Thus, headline inflation breached the RBI’s upper 6% tolerance band for the third consecutive month, with Q4 FY22 and FY22 averaging 6.34% and 5.5% respectively. Last Friday, the RBI woke up to smell like coffee revising its inflation estimates upwards, as if to avoid getting a bad name, and issued a dutiful warning that high inflation will persist through This year. Separately, private estimates peg inflation above 6% for two more quarters, with some projecting monthly inflation of around 7% at least until September. But all of those readings are a day behind and running out of dollars, as the average consumer has seen prices rise faster than wages for several quarters now.
ALSO READ: Food prices push retail inflation to highest level in 17 months
What is worrying is that food inflation, the most volatile component of headline inflation, is making a comeback. As Crisil believes, the poor bear the heaviest burden, since food constitutes the largest part of their consumption basket. In the past fiscal year, low food inflation helped contain the overall figure, while fuel inflation and core inflation increased. But now it’s a double whammy with food inflation adding to core inflation.
At 7.7% last month, high food prices contributed the bulk of retail inflation and high-frequency prices for April already point to further price increases for grains, pulses, fruits and vegetables . This comes at a time when the full impact of high crude oil prices will not be felt until April as tariff hikes began in late March. Even if energy prices are contained, inflation is likely to arise elsewhere.
The first clue comes from China, whose latest Covid-19 restrictions in Shanghai, which accounts for around 40% of its GDP, could be a potential source of further supply chain disruptions. In addition, an increase in input prices for agricultural and non-agricultural products could increase production costs by 8 to 10%. So inflation could average 6% this fiscal year, well above RBI’s forecast of 5.7%, meaning households need to be prepared not only for high prices, but also for high interest rates.
