After rising to 6.95% in March, India’s retail inflation is likely to cross 7% and remain above that mark till September, SBI economists wrote in a report on Wednesday, raising their inflation forecast for 2022-23. increased from 5.8% to 6.5%. Possibility of an ‘extended’ food price shock.
SBI Group Chief Economic Adviser Soumya Kanti Ghosh said that even after September, consumer inflation is expected to remain confined to only 6.5%-7%, adding that the first half of the year is likely to see inflation above 7% , and the latter half a clock. About 6.5%. Other economists also expect inflation to test the Reserve Bank of India’s projected average rate of 6.3% in the first quarter and 5.7% during the year.
In a note, DBS Group Research pointed out that the full impact of the hike in fuel prices implemented in late March is yet to be reflected in the inflation data and that 80% of March’s price jump was due to the food segment. “Inclement weather and global commodity volatility have pushed up the prices of perishable vegetables (vegetables) apart from edible oils,” he wrote in a report.
“We see slight upside risk to the official first quarter forecast of 6.3%, contingent on international crude movements. If our forecast continues, inflation is at risk of breaching the upper end of the 2-6% target for three consecutive quarters, testing the legislative mandate of policymakers,” said Radhika Rao, senior economist at DBS Group. Along with it is written in a note. Senior Rate Strategist Eugene Leo and Senior FX Strategist Philip V.
Mr Ghosh flagged an additional upside risk to inflation from rising agricultural input costs, which would necessitate a sharp increase in minimum support prices (MSPs) for crops.
“Diesel prices have increased by Rs 10 in the last two weeks, fertilizer prices have increased, while labor charges have increased by an average of 4% as compared to 6% in the last fiscal. The cost of production is likely to increase by around 8-10%,” he pointed out, which could lead to a 12%-15% increase in the recommended MSP as compared to the previous range of 3% to 5%.
This would amplify the impact on food price inflation and the overall inflation already affected by the Russia-Ukraine conflict, significantly affecting the trajectory of inflation.
“Wheat, protein items (especially chicken), milk, refined oil, potatoes, chillies, kerosene, firewood, gold and LPG all contribute to overall inflation. The conflict has led to a sudden spike in chicken prices as chicken feed imports from Ukraine are being disrupted,” the SBI report said, adding that sunflower, palm and soybean oil supplies are also under pressure.