India retail inflation: Retail inflation in India surges to 8-year high of 7.79% in April

Retail inflation in India surged to 7.79% on an annual basis in the month of April owing to higher edible oil & fuel prices, data from the Ministry of Statistics and Programme Implementation showed on Thursday.

The headline inflation is now at the highest level since the 8.33% hit in May 2014.

Analysts had expected the CPI inflation to be around 7.5%, up from 6.95% in the month of March & 4.23% in April 2021. With this, the headline retail inflation has now remained above the Reserve Bank of India’s 6% upper tolerance level for the fourth consecutive month.

Rural inflation rose to 8.38% in April as compared to 7.66% in March and 3.75%% in April 2021 while urban inflation stood at 7.09% in April as compared to 6.12% in March and 4.71% in April 2021.

Meanwhile, the overall food inflation in April was 8.38%, against 7.68% in the previous month and 1.96% in April 2021.

The core inflation, which is calculated by excluding ‘food and beverages’ and ‘fuel and light’ from the overall inflation, shot up to 6.8% in April from 6.6% in March.

The Monetary Policy Committee last week, in an off-cycle move, had hiked rates by 40 bps for the first time since August 2018. “The MPC expects inflation to rule at elevated levels, warranting resolute and calibrated steps to anchor inflation expectations and contain second-round effects,” RBI Governor Shaktikanta Das said as he announced that the MPC had unanimously voted to increase the policy repo rate.

“The sharp spike in inflation in April explains the out of turn rate hike by RBI,” said Rajani Sinha, Chief Economist, CARE Ratings. “With global turmoil continuing and commodity prices remaining high, there will continue to be upward pressure on inflation in the coming months. With concerns on second round effect of inflation and wage price spiral caused by high household inflationary expectations, the RBI will be on tenterhooks,” she added.

The MPC is scheduled to next meet on June 6-8. Sinha expects RBI to hike policy rate by another 25 bps in June and total of around 75-100 bps in FY23.

“We raise our CPI forecast for FY23 to 6% from 5.3-5.5% earlier. The Russia-Ukraine crisis is dragging on for longer, keeping crude oil prices elevated above US$100/bbl against our base case of ~US$80-90/bbl,” said Teresa John, an economist at Nirmal Bang. A US$10/bbl increase in crude oil prices adds around 25 bps to the baseline inflation.