Inflation, which continuously peaked this financial year, is expected to settle around the Reserve Bank of India's target only by March 2019.
Inflation: In June, the Wholesale Price Index (WPI) inflation surged to highest in the Narendra Modi-era to 5.77%, while the Consumer Price Index (CPI) touched 5%, mainly due to higher crude oil prices and volatility in vegetable prices. Inflation, which continuously peaked this financial year, is expected to settle around the Reserve Bank of India’s target only by March 2019.
In a report, Kotak Economic Research has projected that the headline WPI inflation will ease to 4.1% in March 2019, but the average for the entire year will be 4.5%, much higher than previous fiscal’s 2.9%. Higher WPI Inflation does not impact consumers directly but puts pressure on prices, which subsequently pushes retail inflation upwards as well.
Even the RBI takes into account the CPI inflation and could hike the repo rate by 25 basis points in August as inflation pressure is expected to continue. In its Monetary Policy Meeting in June, the central bank, while hiking interest rate by 25 basis points, had projected retail inflation at 4.8-4.9% for the period of April-September and 4.7% for October-March, the second half of the fiscal year.
The RBI said that there was a 12% increase in the price of Indian crude basket, which was “sharper, earlier than expected and seems to be durable”. The RBI targets to keep inflation at 4% with a margin of 2% on either side. In June, the prices of fruits surged the most, followed by vegetables by 10.13% and 7.8% respectively. Fuel and light inflation also witnessed a surge of 7.14% from the same month last year.
Inflation had peaked to a record high of 12.13% in November 2013 but remained below 6% mark since late 2014 as the international crude oil price also slumped.