Inflation | Benign food prices likely dragged India’s April inflation to three-month low
Indian retail inflation likely eased to a three-month low in April on softening prices for vegetables and other perishable foods, a Reuters poll suggested, bringing the headline rate closer to the midpoint of the Reserve Bank of India‘s medium-term target.
That reprieve would provide policymakers with some relief as they seek to keep prices under control amid growing risks that state-wide lockdowns and curfews imposed to tackle a record surge of COVID-19 cases could disrupt supplies and fuel prices.
Consumer price inflation was predicted to cool to 4.20% in April, just above the RBI‘s 4% mid-point target and down from March’s four-month high of 5.52%, according to the poll of nearly 50 economists taken over the past week.
Forecasts for the headline figure ranged from 3.90% to 6.15%. The data will be released on May 12 at 1200 GMT.
“Base effects are significantly favourable in April, putting more than 150 basis points downward pressure on headline year-on-year inflation. Beyond this, onion prices have also fallen further,” noted Samiran Chakraborty, chief economist for India at Citi.
“On the other hand, prices of food excluding vegetables continue to exert upward pressure on inflation. Fuel prices remained broadly stable in April, likely due to the state elections.”
India will probably receive an average amount of rain in the 2021 monsoon, the India Meteorological Department said last month. Rain delivers about 70% of the country’s annual rainfall and helps drive up food and grain production, which keeps inflation in check.
However, the recent build-up in input costs, driven by high global commodity prices and supply chain disruptions, remains a major concern for the central bank.
The RBI raised its inflation projection for the first half of this fiscal year to 5.2% last month, still within the central bank’s target range of 2%-6%.
“Despite the expected easing in CPI to 4% levels and downside risks to growth, we expect the RBI to keep rates on hold at its June meeting and all through FY22,” said Teresa John, economist at Nirmal Bang.
“We expect the RBI to rely on yield curve management to ensure the smooth sailing of the borrowing programme and to keep benchmark linked rates from rising so as to aid the recovery. We also expect the RBI to continue with its liquidity support measures for the vulnerable sectors.”