Customers browse through merchandise at a store on the outskirts of New Delhi, India, in February as prices continue to rise, with March inflation figures close to 7%.
Anindito Mukherjee / Bloomberg via Getty Images | Bloomberg | Bloomberg | beautiful pictures
Analysts told CNBC that inflation in India is rising sharply and there are signs that the trend will continue to rise.
Figures released by India’s Ministry of Statistics on Tuesday showed retail inflation rose 6.95% in March from a year ago. That marked the third consecutive month that retail inflation breached the central bank’s upper margin of acceptance of 6%.
The Modi government has asked the Reserve Bank of India to keep retail inflation at 4%, by a margin of 2%, for a five-year period ending in March 2026.
Last week, India’s central bank revised up its inflation forecast – from 4.5% to 5.7% – for the current financial year ending March 2023. The RBI also signaled that it will shift from supporting economic growth to curbing inflation.
“In the chain of priorities, we have now put inflation before growth. The time is right to put inflation before growth,” RBI Governor Shaktikanta Das told reporters on April 9.
RBI also downgraded India’s economic growth forecast for the current financial year from 7.8% to 7.2%, citing escalating geopolitical tensions.
Sonal Varma, Nomura’s chief economist for India and Asia, predicts inflation will continue to trend higher and remain above the RBI’s 2% to 6% target over the next 12 months.
“Policy prices are extremely consistent. And we think the RBI will have to start adjusting policy starting in June,” she told CNBC’s “Squawk Box Asia” on Wednesday.
Carnegie India’s Suyash Rai agrees that the benchmark rate is subject to change.
“If the March inflation numbers lead to a revised forecast, the RBI could raise rates sooner,” Rai said.
The RBI has kept its benchmark rate steady at 4% since May 2020, maintaining its accommodative stance while suggesting it will be open to focusing on inflation.
The Indian government’s chief economic adviser V. Anantha Nageswaran told CNBC.
“The central bank has sent a very clear signal that it is now committed to prioritizing curbing inflation over supporting growth,” he said.
Nageswaran also said the government has taken measures such as reducing import duties on imported palm oil to help combat food inflation.
“But we shouldn’t forget that what we’re dealing with is a global phenomenon,” Nageswaran told CNBC’s “Street Signs Asia” on Wednesday.
Signs of a ‘mature’ economy
Asked if the government would reduce taxes on fuel to offset rising crude oil prices, he said the government would monitor the situation from now on.
“If price stays high for a quarter or two or so, beyond $110 [a barrel]There needs to be some burden sharing between the government and households,” he said, although he added that fuel consumption would be reduced through wider use of transport. public.
Nageswaran said the current anxiety about inflation is a sign of a maturing economy.
“The fact that India is currently doing an inflation rate around 6% to 7% is a sign that the Indian economy is maturing… because before that, the average inflation rate of India was Degrees used to be around 7% for the last 5 decades or so, until 2010. But the fact that we’re so concerned now about 7% as a kind of massive inflation rate shows that expectations are rising. really changed.”
