Home / Economy / Inflation gallops to 8-year high, raising the odds of a rate hike in June

Consumer prices continued to rise in April with inflation galloping to eight-year high of 7.79%, increasing pressure on Reserve Bank to consider more rate hikes in the coming days.

Food inflation jumped to 8.38% from 7.68% in March, government data released on Thursday showed.

While inflation is expected to be elevated in 2022-23, mitigating action taken by the government and RBI may reduce its duration, the finance ministry said in its monthly economic review report, while promising action to alleviate price rise pain.

"The surge in the CPI inflation has clearly justified the off-cycle rate hike last week, and significantly raised the likelihood of a back-to-back rate increase in June 2022.

"We see a higher base softening the May 2022 CPI inflation print, although it will remain above 6.5 per cent," Aditi Nayar, Chief Economist, ICRA said.

To contain inflation going out of control, Reserve Bank has raised its key lending rate off record lows at an off-cycle meeting earlier in May. Markets see the Reserve Bank of India hiking its key rates further in the coming months as inflation remains elevated.

Reuters reported the Monetary Policy Committee (MPC) will consider more rate hikes in June meeting and raise the forecast for the current fiscal.

The country has also been importing oil from sanctions-hit Russia at discounted rates to ease some of the pressure from surging crude prices, which recently touched $139 a barrel.

India meets nearly 80% of its oil needs through imports and rising crude prices push up the country's trade and current account deficit while also hurting the rupee and fuelling imported inflation.

"Today's inflation print was higher than expected and clearly justifies the out of cycle rate hike by the RBI (Reserve Bank of India) last week. The increase was broad based across food, fuel and core inflation. We could see higher prints of close to 8% by September due to a base effect which is likely to be the peak for inflation," said HDFC Bank principal economist Sakshi Gupta.

Meanwhile, the industrial output, as measured by Index of Industrial Production rose 1.9% in March.

“In the chronology of events leading to high domestic consumer inflation, there were indications that it will continue to peak even for the April 2022 print. Hence, despite crude oil price cooling off from its peak levels in March, the cascading effect of increase in domestic fuel price is reflecting on the latest consumer inflation number. Besides, food inflation is also at an elevated level in the country and globally, which is a concern for the domestic economy. The recent price moderation in crude and some commodities as a fallout of tightening liquidity and increased credit costs is expected to play a role in inflation moderation in the near term. This should also lend comfort to the RBI to maintain a status quo on policy rate in the upcoming Monetary Policy Committee meeting," said Vivek Rathi, Director-Research at Knight Frank India.

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