Consumer inflation at 8-year high may 'trigger' quicker rate hikes

New Delhi, May 14 (IANS): Sounding a red alert on India's CPI inflation at an 8-year high print of 7.79% YoY in April, Acuite Ratings has said it may trigger quicker rate hikes.

"If inflation pressures continue to mount there is a likelihood of additional hikes thereby taking the rate to its pre- pandemic level of 5.15 per cent or even higher in FY23. Additionally, we also expect CRR to be hiked by another 50 bps by H1FY23," Acuite Ratings said.

Given the tone of urgency in RBI's statement to support the altered inflation-growth dynamics, "we now revise our call and expect the RBI to hike repo rate by an additional 60 bps in the rest of FY23".

The increasing price pressures was in motion even before the onslaught of the geopolitical conflicts. However, lingering war between Russia and Ukraine, unprecedented level of sanctions, elevated oil and commodity prices along with prolonged supply chain disruptions have escalated the inflationary concerns both in the global as well as domestic economies, it said.

Globally most economies have shifted from an extended disinflationary phase to tackling strong inflationary concerns, causing key central banks monetary policy rhetoric to switch to extreme hawkishness and policy tightening in 2022 from pandemic-era accommodative policies.

"From domestic standpoint, for FY23, inflation drivers are likely to face considerable pressure from persistent hardening of input prices. The heightened pressure from commodity prices is also coinciding with unlocking of the economy post Omicron wave while vaccination coverage continues to gain traction. While we stick to our estimate of 5.9 per cent for FY23 CPI inflation, we now believe that there is a buildup of upside risks," Acuite Ratings said.

"Going forward, we expect the core inflation to remain sticky at elevated levels given upward revision of petrol and diesel prices by the OMCs in order to reduce the under-recoveries being accumulated by them at the current crude prices of USD 100 plus per barrel."

Acuite Ratings said the government, however, may also consider a partial absorption of the increased prices through a further excise duty cut on petrol and diesel which could provide marginal comfort from inflation perspective. While the direct pass-through of elevated commodity prices can be seen through increasing prices of petrol and diesel and non-subsidized LPG, indirect pass through of unprecedented input cost pressures by manufacturers is visible through rising prices of certain personal care products within FMCG sector which will get reflected in the core CPI print in the coming months.

After moderating close to RBI's inflation target rate in September-21, headline CPI inflation has been rising incessantly with the print breaching the upper tolerance threshold in Q4 FY22, averaging at 6.34 per cent. It has started to gather steam in April-22 gaining strength from the geo-political crisis and rising to an eight year high of 7.79 per cent YoY from 6.95 per cent YoY in March-22.


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Comment on this article

  • Jossey Saldanha, Raheja Waterfront

    Sat, May 14 2022

    Reduce the price of Diesel & Petrol ...

    DisAgree Agree [3] Reply Report Abuse

  • real kujuma, kodial

    Sat, May 14 2022

    we dont care as far as 56 inch richest fakir is leading the nation...jai ho

    DisAgree Agree [16] Reply Report Abuse

  • Sameer, Riyadh

    Sat, May 14 2022

    Tell us something which is in good shape since BJP came to power? Since 2014 everything has changed to worse. Aisa lagta hai jaise 'grahan' hua hai. The only vikas is in Ambani and Adani companies.

    DisAgree Agree [20] Reply Report Abuse

  • Rishi, Thane/Mumbai

    Sat, May 14 2022

    India is following footsteps of srilanka. Our situation will be same like srilankas if Government doesnt start to focus on actual issues rather than unwanted issues.

    DisAgree Agree [21] Reply Report Abuse

  • Chandu, Karla

    Sat, May 14 2022

    These are the promised achche din for common people. Now pay the price and enjoy. All savings schemes , bank FDs , postal savings, fixed rate bonds, are now yielding negative returns. Jai ho Lala...!!!???

    DisAgree [2] Agree [17] Reply Report Abuse

  • Rolf, Dubai

    Sat, May 14 2022

    Ambani family spotted in their Rolls Royce Phantom & Bentley Mulsanne in Hindustan.

    DisAgree Agree [16] Reply Report Abuse

  • Alwin, Mangaluru

    Sat, May 14 2022

    What about government disinvestment

    DisAgree [2] Agree [15] Reply Report Abuse

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