Two simple facts define the renewed Indian inflation challenge. Consumer price inflation in May was nearly a percentage point higher than in March. And it was 76 basis points above the 5% target that the Reserve Bank of India has to meet by January 2017.
Keeping a lid on food prices continues to be one of the main challenges for Indian economic policy. The most recent inflation readings are a reminder of this harsh reality. The jump in consumer price inflation and the continued move of wholesale prices out of deflation territory have one thing in common—they are being powered by a sharp increase in food prices. Core inflation is less of a problem. But for how long?
Higher food prices, the recovery in global oil prices and the recent pick-up in domestic consumption need to be watched carefully. There are some early indications of a revival in corporate pricing power as well. Inflationary expectations also seem to be inching up. The war against inflation is not over.