This is the ninth consecutive month that inflation data has remained above the Reserve Bank of India’s (RBI) tolerance band of 2-6%.
In August, the CPI numbers broke a 3-month downward trend, reaching 7%, mainly due to a rise in food prices.
The government has tasked the RBI to keep inflation within the range of 2-4% with a margin of 2% on each side.
Amid this rising inflationary pressure, the central bank is expected to further increase the benchmark lending rates, adding to the financial burden on the common people.
RBI’s Monetary Policy Committee (MPC) takes into account retail inflation data while formulating its bi-monthly monetary policy.
What is the reason for rising inflation?
Due to uncertain rainfall and supply shocks from Russia’s invasion of Ukraine, prices of daily consumables such as grains and vegetables, the biggest category in the inflation basket, have climbed over the past two years.
Consumers already reeling from the economic shock induced by the Covid-19 pandemic will be further hit by the price hike as they spend a major chunk of their income on food amid the festive season in the country.
The government introduced seratin measures to pacify domestic prices, including some export restrictions on rice, to control inflation. But consumer prices have remained volatile and have remained above the RBI’s upper tolerance limit this year.
Apart from this, the continuously weakening rupee is adding to the crisis. The battered Indian rupee hit a new low of 82.32/$ last week and is expected to remain under pressure over the next 6 months.
This is likely to put pressure on the RBI, which has raised its key repo rate by 190 basis points in four moves this year to accelerate its interest rate hikes.
What did RBI say
Presenting his monetary policy on 30 September, RBI Governor Shaktikanta Das had retained the inflation forecast for FY13 at 6.7% amid geopolitical concerns arising out of the Russo-Ukraine war, and inflation expected to be under control by January. Was.
The RBI governor said India faces risks to food prices, while underlining that grain price pressures are spreading from wheat to rice in anticipation of lower kharif paddy production.
“Low sowing of kharif pulses may also lead to some pressure. Delayed withdrawal of monsoon and intense rains in various regions have started affecting the prices of vegetables, especially tomatoes. These risks of food inflation have led to Inflation expectations may be adversely affected,” the RBI governor had noted.
“If high inflation is allowed to stagnate, it always triggers second-order effects and destabilizes expectations. Therefore, monetary policy must adjust its calibrated action on policy rates and liquidity conditions in line with evolving inflationary growth dynamics. It has to be carried forward. It has to be alert and nimble,” Das had said.