Fueled by erratic rainfall and supply shocks from Russia’s invasion of Ukraine, prices of staples such as cereals and vegetables, the largest category in the inflation basket , have climbed over the past two years.
Already reeling from the economic shocks induced by the COVID-19 pandemic, India’s poor and middle classes will be hit even harder by the increases, as they spend a large portion of their income on food.
The Archyde.com poll of 47 economists, conducted Oct. 3-7, suggests inflation – as measured by the consumer price index – hit an annual rate of 7.30% in September, down from 7.00% the previous month. . If it comes true, this figure would be the highest since May 2022.
The forecast for the data, due at 1200 GMT on October 12, ranged between 6.60% and 7.80%. Some 91% of economists, or 43 out of 47, expected inflation to be 7.00% or higher, suggesting that the bias was for prices to rise further.
“There is strong food pressure manifesting. What is even more worrying is that inflation of cereals and pulses, which has been subdued for some time, will increase at an unprecedented rate. “, said Dharmakirti Joshi, chief economist at Crisil.
“Will monetary policy action be able to contain it? Quite honestly, no. It will keep inflation expectations from rising, but fiscal policy has a bigger role to play.”
The Indian government has introduced measures to calm local prices, including some rice export restrictions to temper inflation. But consumer prices have remained defiant and have remained above the RBI’s upper tolerance limit this year.
The weakening currency is not helping either. The battered Indian rupee hit a fresh low of $82.32/$ on Friday and is likely to remain under pressure over the next six months, according to a separate Archyde.com poll of currency analysts.
This should prompt the RBI, which raised its policy rate by 190 basis points in four moves this year, to step up its interest rate hikes.
“Against a more hostile global backdrop and a firmer domestic inflation path, we now expect a terminal rate of 6.75% – previously 6.25% – for this cycle,” said Sajjid Chinoy, chief economist. for India at JP Morgan.
“To the extent that the rupee weakens, there will be pass-through effects to the path of the CPI.” (Reporting by Arsh Tushar Mogre; Polling by Anant Chandak, Devayani Sathyan and Veronica Khongwir; Editing by Mark Potter)