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India’s retail inflation falls slightly but stays above 7%

India’s retail inflation falls slightly but stays above 7%

The retail inflation rate in India fell slightly to 7.01% in June, down from May’s figure of 7.04%, but price rises exceeded the Reserve Bank of India’s (RBI) upper limit of 6% for the sixth month, staying above 7% for the third straight month.

Rural inflation rose marginally to 7.09%, up from 7.08% in May, while city consumers saw a 6.92% price rise, according to the Consumer Price Index. Food price inflation eased to 7.75% across the board, down from 7.97%, but hit 8.04% in urban areas.

Finance Minister Nirmala Sitharaman said the government was keeping “a constant vigil on prices and sustain growth impulses”.

She said: “Till the start of the second half... the central bank and the government will have to be extremely mindful and watchful of price movements. I will keep monitoring [inflation] item by item.”

Sitharaman said she hoped that the monsoon would help the farming sector and result in a good crop, adding that it would also help ensure rural demand remained intact. The government’s pointed attack on inflation would, however, need to continue for a while, she said.

Transport and communication inflation fell to 6.9% in June, from 9.47% in May, reflecting the full impact of the excise duty cuts on petrol and diesel. D.K. Srivastava, EY India’s chief policy advisor, said: “Retail inflation has now averaged 7.3% in the first quarter of 2022-23, slightly lower than the RBI’s forecast of 7.5%.

“There is not much relief for the low-income consumer budgets with inflation in clothing and footwear at higher levels of 9.2% and 11.9%, respectively, in June. Fuel and light inflation also increased to 10.4% in June as compared to 9.5% in May. Inflationary pressures thus continue unabated due to global supply-side disruptions and consequent pressures on prices of global crude and primary products,” he said. The central bank is expected to continue to raise interest rates by about 50 to 60 basis points.

 

India on course to become world's fastest-growing economy

India is set to become the world’s fastest growing economy, despite the ongoing problems in the global economy, according to an article in the latest issue of the Reserve Bank of India Bulletin.

“The biggest source of relief is from inflation coming off its recent peak, albeit at an elevated level still. Nonetheless, the signs of its generalisation and the potential unhinging of inflation expectations have elicited a pre-emptive and frontloaded monetary policy response,” the Bulletin says.

It added: “Amidst all these developments, India’s financial sector remains sound and stable. If the commodity price moderation witnessed in recent weeks endures alongside the easing of supply chain pressures, the worst of the recent surge in inflation will be left behind, enabling the Indian economy to escape the global inflation trap and enjoy the fruits of the ebullient supply response that is taking place.”

In the wake of the pandemic and now the war in Ukraine, the Indian economy has faced repeated supply shocks, according to the Bulletin. “Supply shocks are larger and unrelenting now, carrying the risk of unanchoring inflation expectations. They are also accompanied by a rebound in pandemic related revenge spending,” it notes.

 

7%-8% growth predicted

A leading academic is predicting a bright future for the Indian economy, which he predicts will grow by 7%-8% over the next 20 years.

Speaking at an event organised by Columbia Global Centre, Arvind Panagariya, Professor of Economics at Columbia University, said: “We have been growing fairly rapidly in the last 17 years. We will grow 7-8% in the next couple of decades.” He said the country’s economy grew 7.4% between 2014-15 to 2019-20.

India’s economy grew 8.7% in 2021-22, having contracted by 6.6% in the previous 12 months.

The World Bank has cut India’s economic growth forecast for the current fiscal year to 7.5%.