Retail inflation races to an almost 8-year high at 7.8%

Inflation faced by Indian consumers raced to an almost eight-year high of 7.8% in April, from 6.95% in March, with rural inflation accelerating to 8.4%, and urban shoppers experiencing an almost 1 percentage point month-on-month quickening at 7.1%, data released by the National Statistical Office on Thursday show.  

Food costs led the surge with inflation measured by the Consumer Food Price Index (CFPI) printing at 8.4% after March’s 7.7%. Food prices rose at a faster clip of 8.5% in rural India. This is the fourth month in a row that retail inflation has remained above 6%, which is the upper tolerance threshold for inflation under the monetary policy framework.

Food inflation at 8.4% was significant as inflation in cereals was high because of higher wheat prices, said Bank of Baroda chief economist Madan Sabnavis, pointing to the increased diversion of the grain for exports as the cause for shortages in the country. 

Economists said the sharp acceleration in retail inflation explained the central bank’s rush to raise interest rates in an off-cycle meeting last week, adding that the move was likely to be backed by another rate increase in the coming policy review next month.

While the Finance Ministry didn’t immediately react to April’s inflation numbers, it said in a report released earlier in the day that the risk of sustained high inflation was ‘low’ for India as demand recovery remained slow. India’s inflation experience had not been as bad as that of several advanced nations and rising prices had had a lesser impact on lower income households in the country than high-income ones, the ministry contended in its monthly economic review.

Transport and Communication inflation, which reflects automobile fuel prices, raced to 10.9%, surging by almost 300 basis points from the preceding month’s 8% reading. Food and beverages inflation sped up to 8.1% in April, from 7.47% in March, led primarily by a quickening in vegetables inflation to 15.4% from March’s 11.6%. The pace of price rise in oil and fats eased marginally to 17.3%, from 18.8% in March. Meat and fish inflation also cooled a bit to about 7% in April from 9.63% in the previous month.

Clothing and footwear costs continued to be a bugbear for households, with combined inflation of 9.85% in April, up from 9.4% in March, with footwear prices rising at 12.12% and clothing costs up by a sharp 9.5%. Mr. Sabnavis opined that prices of manufactured goods such as personal care and household products were unlikely to come down any time soon.

April’s retail inflation print was the highest in 95 months, ICRA chief economist Aditi Nayar observed, adding that it had overshot the agency’s 7.4% estimate significantly. “A sharp but expected spike in food inflation pushed up the headline figure, even as core inflation printed at a rather unpleasant level. The negative surprise was largely on account of miscellaneous items, fuel and light, and clothing and footwear, raising the spectre of a generalisation of inflationary pressures,” she noted. 

Among the States, West Bengal and Madhya Pradesh recorded a much higher inflation rate than the national average, at 9.1%, closely followed by Telangana and Haryana which reported inflation of about 9%.  By contrast, Kerala (5.08%) and Tamil Nadu (5.37%) clocked the lowest inflation rates in April.

While ICRA’s Ms. Nayar said she expects the inflation rate to cool in May due to base effects, it would still likely hover above 6.5%.

“The early data for May 2022 revealed a continued sequential uptrend in the average prices of edible oils, atta and wheat, reflecting the fallout of global supply disruptions triggered by the geopolitical conflict, including the palm oil export ban by Indonesia. Moreover, there has been an uptick in the average prices of some vegetables like tomatoes, potatoes, ginger, iodised salt, and fruits like apples and papayas,” Ms. Nayar noted.