Inflation has breached comfort levels and assumed ‘worrisome’ proportions in India, Moody’s Analytics on Tuesday said in a note on Asia’s inflation worries driven by rising oil prices.
Stressing that India’s retail inflation has been breaching the Reserve Bank of India’s (RBI’s) 4% inflation target for the past eight months, the financial intelligence firm said India and Philippines are the two notable exceptions — in Asia — where inflation is beyond the comfort level.
“Volatile food prices and rising oil prices led India’s CPI (consumer price inflation) to exceed the upper band of 6% several times in 2020, inhibiting the RBI’s ability to keep accommodative monetary settings in place during the height of the pandemic. Higher fuel prices will keep upward pressure on headline CPI and keep the RBI from offering further rate cuts,” said the firm, which operates independently of Moody’s Investors Service, the credit rating agency.
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The firm said that India is expected to retain its current retail inflation targeting framework for monetary policy, with a target of 4% and a margin of 2% above and below that. The framework is due to be revised from April 1 this year. “The government is reportedly mulling small amendments, including increasing flexibility in exceptional times.”
Terming the rise in India’s retail inflation worrisome, the firm said India’s core CPI (excluding food, fuel and light prices) rose to 5.6% in February from 5.3% in January, even as food and beverage price inflation quickened to 4.3% from 2.7%. “Food is a key driver of inflation, representing 46% of the CPI basket,” Moody’s Analytics said.