Just four days after the RBI announced that it would be prioritising inflation over growth, official data show retail inflation disquietingly accelerated to a 17-month high of 6.95% in March. The pace of acceleration in price gains appears to have caught most economists too off guard. The RBI’s latest Survey of Professional Forecasters, released last week, shows the median Q4 inflation expectation of the 33 panellists polled made an assumption for March CPI inflation that was 73 basis points lower at 6.22%. The upsurge was largely driven by food prices, which at the food and beverages group level accounts for 46% of the weight of the Consumer Price Index. While inflation in food and beverages accelerated by 154 basis points from the previous month’s pace to an annualised rate of 7.47%, the month-on-month inflation too was a significant 1.3%. Prices of oils and fats rose 18.8% year-on-year and by as much as 5.3% sequentially. Even granting that the war in Ukraine has severely disrupted the import of sunflower oil and forced edible oil importers to seek alternative supplies at a premium, this is one food item that has been witnessing protracted price pressures. It reflects poorly on the Government’s efforts to proactively address the supply related issues. Meat and fish prices too saw a sharp spike, at 9.63% annualised and a 5% sequential acceleration. RBI Governor Shaktikanta Das pointedly flagged the war’s impact on feed costs and warned that global supply shortages could continue to have a “spillover impact on poultry, milk and dairy” prices.
Consumers in the hinterland, where a vast majority of the poor live, have been harder hit, with rural inflation running a sizeable 71 basis points faster at 7.66%. Food price inflation for rural buyers measured by the Consumer Food Price Index, exceeded the 8% level, at 8.04%, hinting at the increasing precarity and nutritional vulnerability in the countryside. Most disconcertingly, the March inflation print barely factors in the pass-through impact of the ongoing increases in the pump prices of petrol and diesel, as state-run refiners began raising prices only from March 22. With road freight rates for transporting everything from farm produce to industrial goods set to rise to reflect the increase in fuel costs, looking ahead the 8% inflation seen in the transport and communication subgroup may end up seeming rather tame in comparison. Two other RBI surveys, on Households’ Inflation Expectations and Consumer Confidence, also raise cautionary flags. While the former shows both three-month and one-year ahead expectations rose from the last round to 10.7% and 10.8%, respectively, the latter points to consumer confidence remaining negative, an improvement in sentiment notwithstanding. Specifically, the one-year ahead expectations on inflation show about 84% consumers see price gains intensifying and the majority expect to spend more on essentials than non-essentials. It is time policymakers act to tame inflation before it dampens consumption and growth any further.
