In an effort to cope with years of high inflation caused by higher food and fuel prices, several economists believe that a combination of normal rainfall supports higher agricultural production and the Reserve Bank of India (RBI) further raises interest rates to reduce easy money in the system key is triggered.
They added that the focus will be on monetary policy to control price pressures, although the government has the option to further reduce excise duties on petroleum products to curb fiscal inflation.
While retail inflation rose 7.04% in May on an annual basis, slightly below the 95-month high of 7.79% in April, wholesale or WPI inflation rose to a record 15.88% in May. Three-quarters of the rise in prices comes from food, and the normal monsoon will help cool it as it increases production and replenishes supplies.
RBI has already raised interest rates by 90 basis points after inflation remained above the 2-6 percent target for the fifth consecutive month and is expected to raise interest rates by another 80 basis points, they said.
For the average person, rising prices are a hole in the pocket.
Edible oil prices, which were a major contributor to inflation, began to fall slightly, with leading players announcing some cuts.
“Gasoline and diesel have become expensive, but by comparison, fees haven’t risen that much. We have to pay taxi companies as well. We’re left with quite a bit,” Suckinder Singh, a 47-year-old taxi driver, said.
A 40-year-old vegetable vendor said managing two meals a day has become difficult as people choose home deliveries instead of buying from vegetable suppliers. “Medicines are becoming expensive. We can’t even afford to get sick these days.”
Economic Affairs Secretary Ajay Seth said on June 16th that inflation in India was mainly due to high energy and food prices and hoped it would slow in the coming months. “We are all aware that the summer months are difficult months for vegetables and other products,” he said. “High crude oil prices are certainly a challenge, and whatever measures are needed and feasible are being taken.”
S&P Global Ratings economist Vishrut Rana says higher global commodity prices are a key driver of inflation and the outlook for food inflation, which weighs heavily on the CPI’s overall basket, will depend on the monsoon, sufficient rainfall will help agriculture production and will help control prices.
“There are some additional policy options to deal with wider price pressures, such as reduced excise duties, lower value-added taxes or direct subsidies on agricultural products, but for now the focus is likely to be on monetary policy. We expect another 75 basis points Tighter monetary policy will help slow rising inflation, “Rana told PTI by email.
India Ratings & Research chief economist Sunil Sinha said India as a net importer of goods could do very little about it. However, in order to mitigate the impact, the reduction of import duties and the reduction of subsidies is the way out. But they have their own limits and cannot fully offset the impact of imported inflation, which, in addition to high prices, is seeping into the economy by devaluing the rupee.
India Ratings and Research expects another increase of 50-75 bps in the reminder for the 23rd financial year, he added.
Deloitte India economist Rumki Majumdar said inflation was more the result of supply chain disruptions, both globally and domestically. Steep sanctions against Russia after the geopolitical crisis, newer restrictions on oil and gas supplies from Russia and repeated blockades (due to the resumption of Covid) in several nations have added to the existing logistics challenges and supply chain.
EY Chief Political Adviser in India DK Srivastava said easing supply constraints, fiscal policies that affect the real economy and focusing on relevant sectors with limited supply could be more effective. But they usually take a relatively long time to bear fruit.
“We can expect some improvement in the situation in the third and fourth quarters of 2022-2023,” Srivastava said.
Moody’s Analytics economist Shahana Mukherjee said the volatility of global commodity markets is expected to keep inflation above comfortable RBI levels in the beginning of September.
“The increase in prices on a broad basis due to supply disruptions has contributed to the rise in the wholesale price index in India. Moody’s Analytics expects the repo rate to be increased by another 60 to 80 basis points in 2022.
In the two-month monetary policy RBI earlier this month raised its inflation forecast for the current fiscal by 100 basis points to 6.7%.
The prices of all goods have increased significantly in the recent past. Right from vegetables, school fees, bus fees to housing loans, everything shoots up.
Taking advantage of the reduction in interest rates, many chose home loans. During the COVID pandemic, interest rates were around 6.5 percent and have now risen to 7.3 to 7.5 percent. This difference in the interest rate sends the monthly budget to middle-income groups, especially employees. Many adjustments need to be made to offset the increase in the amount of the home loan, said 50-year-old Nageswara Rao, who took out a home loan to buy a house from two BHKs.
Farhana Begum, a private school teacher who stays in a rented house, says it is becoming a challenge in terms of rising costs for everything. “Everything is getting expensive. But wages are not rising in line with rising prices. I’m also taking private lessons,” she said.
Arun K Nair, an expert on hospital management in Kochi, said: “Soon this will hit the rural economy very hard … Cities can survive, as wholesalers will not be able to bear the burden any time soon.”
S Krishna Mohan, retired lecturer at Vijayawada: “I feel that the rise in transport costs due to the rise in diesel and petrol prices has fueled the rise in prices. Yes, it has become burdensome with the increase in LPG prices. I can say that the impact of inflation is high on basic necessities, which obviously puts pressure on ordinary people. ”
With PTI inputs