India's consumer price inflation hits eight-year high 7.79% in April on higher food, energy costs

In April, rising food and energy prices boosted India's annual retail inflation to an eight-year high, strengthening economists' belief that the central bank will need to raise interest rates more aggressively to keep prices in check, as per Reuters reported.

Consumer prices have risen around the world as a result of Russia's invasion of Ukraine, which has driven crude oil and food grain prices to all-time highs, causing several central banks to boost interest rates.

According to Reuters, inflation based on the consumer price index grew more than predicted to 7.79 percent in April, above the Reserve Bank of India's (RBI) tolerance band of 6% for the fourth month in a row, according to statistics issued by the National Statistics Office on Thursday.

The April figure was higher than the previous month's 6.95 percent and the year-ago figure of 4.23 percent. According to a Reuters poll, analysts expected retail inflation to be 7.5 percent.

Graphic: India`s retail inflation highest in nearly 8 years- https://graphics.reuters.com/INDIA-INFLATION/INDIA/egvbklgkdpq/chart.png

A source familiar with the matter told reporters on Wednesday that the RBI's monetary policy committee (MPC), which lifted the key repo rate by 40 basis points to 4.40 percent at an unexpected meeting earlier this month, will explore more interest rate hikes at its June meeting, said Reuters.

The next MPC meeting of the RBI is set for June 6-8.

Inflation is expected to remain around 7% for the next six to seven months, according to Sakshi Gupta, principal economist at HDFC bank, Reuters said.

"The RBI is likely to respond with a rate hike at the June meeting by 25-35 basis points (bps) and follow it up with further rate hikes taking the repo rate to pre-pandemic levels of 5.15%," she said.

TOUGH TIMES FOR CONSUMERS
Consumers, who have already been struck hard by the pandemic for two years, are now worried about rising food prices since prices of edible oil and vegetables have risen on fears of a drop in wheat output this year.

Food costs, which account for about half of the CPI, increased 8.38 percent year over year in April, compared to 7.68 percent a month earlier, owing to increases in edible oil and vegetable prices, said Reuters.

Imported goods have become more expensive as the rupee has depreciated by about 4% versus the dollar this year.

After the central bank intervened, India's rupee hit a new record low of 77.63 versus the dollar before reducing some losses to settle at 77.42.

Both the NSE Nifty 50 index and S&P BSE Sensex closed more than 2% lower as inflation fears and further interest rate tightening roiled markets, Reuters said.

Since mid-March, retail prices of petrol, diesel, and cooking gas have increased by 10%, with many companies passing on hikes in input costs such as transportation and imported raw materials to customers.

Three economists expected core CPI inflation in April to be between 6.8% and 7.1 percent, compared to 6.30 percent to 6.32 percent the previous month, said Reuters.

"With rises in prices of food items and fuel, it is becoming increasing difficult to meet household expenses," said Nadeem Khan, a vendor with food-delivery firm Swiggy.