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

April CPI inflation spurred by higher fuel, food costs with Consumer Food Price Index quickening 8.4%

May 12, 2022 07:49 pm | Updated May 13, 2022 12:31 pm IST - NEW DELHI

A consumer, buys vegetables from a roadside vegetable vendor in Kolkata, India, March 22, 2022.

A consumer, buys vegetables from a roadside vegetable vendor in Kolkata, India, March 22, 2022. | Photo Credit: RUPAK DE CHOWDHURI

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) jumping to a 17-month high of 8.4% from 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. 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.

“Driven by continued global crude price upsurge which impacts food, fuel and light, and transport and communication prices in the CPI basket, India’s April 2022 CPI inflation turned out to be a 95-month high of 7.8%,” noted EY India chief policy advisor D.K. Srivastava. “It was way back in May 2014 that CPI inflation was at 8.3%,” he recalled.

Rural inflation was also at an eight-year high, while several items reported the highest levels in a long time, India Ratings economists Sunil Kumar Sinha and Paras Jasrai wrote in a note. This included miscellaneous goods and services (at a 115-month high at 8.03%) and education, which was at a 23-month high. Inflation in health services was turning structural, staying above 6% for 16 months now, they pointed out. 

Inflation in food and beverages, which has a 46% weight in the overall Consumer Price Index (CPI), 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.

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. 

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.

The government may consider using the additional fiscal capacity reflected in higher GST collections in April and the 49% uptick registered in direct tax collections in 2021-22, to reduce central excise duty rates on petroleum products with a view to containing inflation, Mr. Srivastava suggested. There had to be some reduction in taxes and duties by the government to cool price pressures, echoed Mr. Sabnavis.

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 had overshot the agency’s 7.4% estimate significantly, ICRA chief economist Aditi Nayar observed. “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.

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