India’s inflation in April climbed to a 13-month high of 3.5% from a year earlier, driven by food prices. Though this was only marginally higher than March’s 3.4% reading and undershot economists’ expectation of a 3.8% print, there isn’t much relief to draw, given the rising trajectory of price levels.
Commodity and freight costs have risen in the wake of supply disruptions caused by the war in West Asia, making food costlier. Food inflation hit 4.2% in April, up from 3.9% in March and 3.5% in February. It is likely to come under further pressure as below-average levels of rainfall predicted this year hurt farm output and supplies.
To the relief of consumers so far, fuel retailers and the government’s tax cuts have absorbed the rise in global oil prices. But sharp hikes now seem probable after Prime Minister Narendra Modi’s public appeal to reduce fuel consumption. A battered rupee that has relentlessly been testing new lows is adding to India’s cost of imports.
Overall, inflation is headed higher. For the Reserve Bank of India (RBI), this may spell the end of its credit easing. If inflation surges well past RBI’s 4% target in the months ahead, it might need to tighten credit instead.