Inflation accelerates to near 8-year high, less impact on low-income households, Treasury Department says

April CPI inflation, spurred by higher fuel and food costs, with CFPI jumping 8.4%; Rising prices would have less of an impact on low-income households than on high-income households, the Treasury argues

April CPI inflation, spurred by higher fuel and food costs, with CFPI jumping 8.4%; Rising prices would have less of an impact on low-income households than on high-income households, the Treasury argues

Inflation facing Indian consumers shot from 6.95% in March to a nearly eight-year high of 7.8% in April, with rural inflation accelerating to 8.4% and urban parts of the country posting inflation of 7.1% experienced, according to data released by the National Statistics Office on Thursday.

The Consumer Food Price Index rose to 8.4% from 7.7% in March, with food prices in rural India rising faster at 8.5%. This is the fourth month in a row that retail inflation has stayed above the 6% mark, which is the outer limit for inflation tolerance in the monetary policy framework.

Food inflation of 8.4% is significant as even grain inflation is high due to higher wheat prices, said Madan Sabnavis, chief economist at the Bank of Baroda, pointing to the greater diversion for exports as the cause of the country’s shortages. Fuel and lighting have high inflation of 10.8% and the government needs to do some cuts in taxes and duties to cool price pressures, he added.

Economists said the sharp rise in retail inflation explains the central bank’s rush to raise rates at an out-of-cycle meeting last week and is likely to be helped by another rate hike at the forthcoming monetary policy review in June.

Less impact on low-income groups: Department of Treasury

While the Treasury Department did not react to April’s inflation figures, it said in a report that the risk of persistently high inflation for India is low as aggregate demand is slow to recover. India’s inflation experience has not been as bad as several advanced nations, and rising prices have had less of an impact on low-income households in the country than on high-income households, the ministry argued in its monthly economic report for April.

Inflation in the transportation and communications industry rose to almost 11% in April from just 8% in March. Food and beverage inflation accelerated to 8.1% in April from 7.47% in March, mainly due to a sharp rise in vegetable inflation to 15.4% from 11.6% in March, albeit with price increases Oil & Fats eased slightly to 17.3% from 18.8% in March. Meat and fish inflation also cooled somewhat in April, from 9.63% in the previous month to around 7%.

The cost of clothing and footwear continued to be a bugbear for households, with combined inflation at 9.85% in April versus 9.4% in March, with footwear prices up 12.12% and the cost of clothing a sharp 9.51%. rose. Mr Sabnavis said prices for industrial goods such as personal care and household goods are unlikely to fall.

ICRA’s chief economist said April retail inflation was the highest in 95 months, beating its estimate of 7.4%. “A sharp but expected surge in food inflation has propelled the headline figure higher even as core inflation has been at rather uncomfortable levels. The negative surprise was largely due to miscellaneous items, fuel and lights, and clothing and footwear, raising the specter of inflationary pressures generalizing,” she noted.

Among the states, West Bengal and Madhya Pradesh recorded inflation rates much higher than the national average at 9.1%, followed closely by Telangana and Haryana, which reported inflation at around 9%. In contrast, Kerala (5.08%) and Tamil Nadu (5.37%) recorded the lowest inflation rates in April.

Although ICRA expects the inflation rate to cool off in May due to base effects, it will still be above 6.5%.

“Early data for May 2022 showed a sustained sequential upward trend in average cooking oil, atta and wheat prices, reflecting the fallout from global supply disruptions triggered by geopolitical conflict, including Indonesia’s palm oil export ban. In addition, the average prices of some vegetables such as tomatoes, potatoes, ginger, iodized salt and fruits such as apples and papayas have increased,” Ms. Nayar said.

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