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FX.co ★ India Consumer Price Inflation At 8-year High

India Consumer Price Inflation At 8-year High

India's consumer price inflation accelerated further in April to its highest level in eight years, raising the prospect of another interest rate hike from the central bank in the next policy meeting in June.

The consumer price inflation climbed to 7.79 percent from 6.95 percent in March, latest data from the statistics ministry showed Thursday. Economists had forecast 7.50 percent inflation.

Price growth is now at its highest level since May 2014, when it was 8.33 percent.

A year ago, inflation was 4.23 percent.

The Reserve Bank of India raised its key policy rate, the repo, by 40 basis points to 4.40 percent in an unscheduled move on May 4, citing acute inflationary pressures. The repo rate was raised for the first time since August 2018.

Global dynamics such as the war in Ukraine, runaway energy price, record high food prices, supply bottlenecks due to resurgence of the pandemic, pose significant upside risks to India's inflation trajectory set out in April, the RBI said. Indonesia's ban of palm oil exports are expected to raise food inflation further as palm oil is a common ingredient for a plethora of food and personal care products ranging from biscuits to hair shampoos.

Core inflation is expected to remain elevated in the coming months, reflecting high domestic pump prices and pressures from prices of essential medicines.

The central bank targets inflation of 4.00 percent, with a tolerance band of 2.00 percent at the lower end and 6.00 percent on the upper side. Inflation has remained above the upper band for some months now.

The next meeting of the MPC is scheduled for June 6-8.

The food price index rose 8.38 percent annually in April following a 7.68 percent increase in March.

Among the main component groups, the fuel and light prices logged the biggest annual increase of 10.80 percent in April. This was followed by a 9.85 percent increase in prices of clothing and footwear.

On a month-on-month basis, the consumer price index rose 1.43 percent in April and food prices climbed 1.56 percent.

Separate data from the statistics ministry on Thursday showed that industrial production expanded at a faster-than-expected pace in March on the back of increased output in electricity & mining sectors. Industrial production rose 1.9 percent year-on-year in March, following February's 1.5 percent increase, revised up from a 1.3 percent rise seen in the flash estimate.

That was also above economists' forecast for a growth of 1.7 percent.

Electricity output grew the most by, 6.1 percent, annually in March and those of mining registered an increase of 4.0 percent. However, manufacturing production advanced at a weaker pace of 0.9 percent.

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