India’s retail inflation rises to 6.52% in January
India’s retail inflation rose sharply to 6.52% in January, up from 5.72% in December 2022, according to data from the National Statistical Office (NSO).
The figure is above the Reserve Bank of India’s (RBI) upper tolerance level of 6% after two months, and represents a three-month high.
The sharp increase suggests that India’s inflation worries may not be over, and could prompt the RBI to opt for another hike in key interest rates, economists say.
Recently, RBI Governor Shaktikanta Das said that inflation has been stabilising in India on account of lower vegetable prices, but added that core inflation – which excludes food and energy prices – remained an area of concern.
In fact, the NSO said there had been a sharp increase in retail inflation in January, after falling for three consecutive months.
Economists had earlier predicted retail inflation to rebound marginally in January, but the data released by the NSO today indicates a sharper rise than expected, with inflation shooting up to 5.94% from 4.19% in December.
On a more positive note, the NSO’s figures showed that the inflation rate for vegetables fell to 11.70% in January, compared with 15.08% in December. This indicates that there has been a moderation in the decline of vegetable prices. While the rate of inflation for fuel dropped marginally to 10.84%, the rate for cereals increased to 16.12% in January from 13.79% in December.
A sharper rise in inflation could be a bad sign for the Indian economy as it would not only hurt the vast middle-class population but also hinder demand growth. Moreover, it will also have a direct impact on key interest rates as the central bank will be forced to tighten monetary policy further in April, the NSO said.
India’s retail inflation expected to fall to 5% in 2023, says IMF
The good news is that 84% of countries – including India – are expected to have lower headline (consumer price index) inflation in 2023 than in 2022, according to the World Economic Outlook update, published by the International Monetary Fund (IMF).
Inflation in India is expected to come down from 6.8% in the current fiscal year, ending 31 March, 5% the next fiscal period, and then fall further to 4% in 2024, the IMF said.
Daniel Leigh, Division Chief, Research Department of the IMF, said the expected fall “partly reflects the central bank’s [RBI] actions”.
Global inflation is set to fall from 8.8% in 2022 (annual average) to 6.6% in 2023 and 4.3% in 2024, still well above pre-pandemic (2017–19) levels of about 3.5%, Leigh said.
“The projected disinflation partly reflects declining international fuel and non-fuel commodity prices due to weaker global demand. It also reflects the cooling effects of monetary policy tightening on underlying (core) inflation, which globally is expected to decline from 6.9% in the fourth quarter of 2022 (year over year) to 4.5% by the fourth quarter of 2023,” the IMF said.
“Still, disinflation will take time: by 2024, projected annual average headline and core inflation will, respectively, still be above pre-pandemic levels in 82% and 86% of economies,” it said.
“In most economies, amid the cost-of-living crisis, the priority remains achieving sustained disinflation. With tighter monetary conditions and lower growth potentially affecting financial and debt stability, it is necessary to deploy macroprudential tools and strengthen debt restructuring frameworks.
“Accelerating Covid-19 vaccinations in China would safeguard the recovery, with positive cross-border spillovers. Fiscal support should be better targeted at those most affected by elevated food and energy prices, and broad-based fiscal relief measures should be withdrawn. Stronger multilateral cooperation is essential to preserve the gains from the rules-based multilateral system and to mitigate climate change by limiting emissions and raising green investment,” the IMF concluded.
