Retail inflation in India may snapped a three-month downward trend in August as food prices soared, a Reuters poll of economists found. According to the report, this could add pressure on the Reserve Bank of India (RBI) to hike interest rates more aggressively in coming months, the news agency said.
Inflation in the food basket which accounts for nearly half the consumer price index (CPI) basket is expected to have soared as prices of essential crops such as wheat, rice, and pulses were driven higher by a record heatwave, squeezing household budgets.
Despite the government curbing wheat flour exports towards the end of last month, inflation, as measured by the CPI, likely rose to an annual 6.90 per cent in August, compared with 6.71 per cent in the prior month, the September 5-8 Reuters poll of about 45 economists showed.
According to Reuters, forecasts for the data, due for release on September 12, ranged between 6.30 per cent and 7.37 per cent, with over a quarter of forecasters expecting 7.0 per cent or above.
“Food prices have actually gone up for major cereals, pulses and vegetables on an annual basis because of the production challenges and shortfalls caused by a blistering heatwave,” said Kunal Kundu, India economist at Societe Generale. He also said erratic monsoon patterns across the country suggest there would be more crop damages, keeping food prices elevated in coming months.
The central bank’s own projections showed inflation staying above the 6 per cent top end of its target range until early 2023.
The central bank was expected to hike the repo rate by another 60 basis points through the end of March to 6.00 per cent from a pandemic-era record low 4.00 per cent, a separate Reuters poll showed.
Interest rates are rising even as the economy is expected to slow sharply. At the same time, the RBI is spending billions of dollars a month in currency reserves to defend the weak rupee, which has been trading near record lows of around 80 per dollar for several months.