Retail inflation, measured through consumer price index (CPI), soared to multi-year high of 7.79% in April as food and fuel prices saw further hikes during the month. This is the highest rate of inflation recorded in the Indian economy since May 2014. Rate of inflation in March stood at 6.95%.

With the latest rise, retail inflation is now well beyond the upper limit of the tolerance band recommended by the Reserve Bank of India. With the fresh spurt in prices, retail inflation has remained above the RBI’s upper tolerance limit of 6% for the fourth month in a row. Prices have maintained an upward trend as inflation increased for the sixth straight month.

Inflation in the food basket increased to 8.38% in April from 7.68% in March. Oils and fats sub-group in the food basket saw prices rise 17.28% during the month under review — the highest in the basket — amid supply constraints on edible oils. Recently Indonesia, the world's largest palm oil producer, announced a ban on palm oil exports to increase domestic availability and to control rising prices. Palm oil, imported mainly from Indonesia and Malaysia, constitutes 62% of the total edible oil imports in the country.

Earlier, the Russia-Ukraine war had impacted the supply of sunflower oil, which comprises 15% of most Indian edible oil brands. Soybean oil, which comprises 22% of India's total edible oil imports, is bought mainly from Argentina and Brazil.

The Centre has assured that India has an optimum stock of all edible oils to overcome the dearth of edible oil imports.

Vegetable and spice prices also saw double-digit growth during April at 15.41% and 10.56%, respectively.

Meanwhile, fuel and light sub-group saw prices rise at a rate of 10.80% during the month as crude oil prices remained high. Benchmark Brent crude prices have constantly remained above $100 per barrel since February, when the Russia-Ukraine war broke out. While India imports only a miniscule portion of its crude oil basket from Russia, the high global crude prices have forced retailers’ hands towards raising prices in the country to avoid adverse impact on gross refining margins.

Further hikes in petrol and diesel prices are likely as oil companies struggle to offset the blow to revenues caused by the informal freeze on fuel price revisions on account of state assembly elections.

The jump in consumer price inflation comes days after the Reserve Bank of India increased key policy rates following an off-cycle meeting of the monetary policy committee. After the rate hike, which came after maintaining the status quo for 11 MPC meetings, the repo rate now stands at 4.40%. The standing deposit facility (SDF) rate now stands adjusted to 4.15% and the marginal standing facility (MSF) rate and bank rate to 4.65%.

This marks the beginning of RBI’s efforts to move away from its accommodative monetary policy stance. The central bank has already set its sights on prioritising inflation control over growth and liquidity promotion. We might soon see further policy rate hikes and measures to suck liquidity out of the system, now that inflation has reached an eight-year high.

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