Retail inflation at 8-year high of 7.8%

Retail inflation surged to a near eight-year high in April on the back of escalating food and fuel prices and the impact of disruption in global supply chains due to the war in Ukraine, heaping more pressure on authorities battling to revive growth and triggering the need for sharper interest rate hikes to tame inflationary pressures.

Inflation, as measured by the consumer price index, galloped to 7.8% in April—the highest since 8.3% in May 2014—from near 7% this March. At 8.4%, rural inflation growth outpaced urban inflation (7.1%). The food price index surged to 8.4% in April, higher than 7.7% in March, which experts say was largely because of higher wheat prices due to diversion of the commodity for exports.

Inflation prompted RBI to raise rates by 40 basis points in a surprising move this month. Experts expect the central bank to again raise rates aggressively in the months ahead, starting from June, to tame inflation and protect the economic recovery that’s underway. There is also an acknowledgment that some growth may have to be sacrificed in the fight against inflation.

Core inflation (minus food and fuel) surged to 7.4% during April, indicating the relentless price pressures. Hardening inflation triggered by higher food and fuel prices has emerged as a crucial policy challenge for policymakers around the globe, prompting central banks to raise interest rates.

 Inflation is expected to remain elevated in 2022-23 but mitigating actions taken by the government and the RBI may reduce its duration, a finance ministry report said on Thursday. It asserted that India is relatively better placed than other countries to weather the global economic upheaval and achieve steady growth during the current financial year.

The April monthly economic review by the finance ministry said through the channel of imports, elevated global crude and edible oil prices now have a significant impact on India’s inflation outlook. It added that despite government steps, the global geo-political situation and supply chain issues could influence India’s inflation trajectory.

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