The Consumer Price Index (CPI) data showed that the retail inflation in May was recorded at 7.04 percent, decreasing from 7.79 percent in April.
After a slight post pandemic recovery, the global economy was hit by the conflict between Russia and Ukraine. As the violence ensues thousands of kilometres away, it continues to affect the common person everywhere. Essential commodities have especially seen a constant rise in prices.
However, if we compare the data, the retail inflation during May has come down to 7.04 percent from 7.79 percent in April. Although the data has reduced from the inflation rate of April, it is still higher than the Reserve Bank of India’s (RBI’s) expectations of 2-6 percent.
Even though the data shows a positive decline in the prices, the RBI is less likely to act accordingly, due to several base effects. While there are lesser chances of the central bank increasing the prices shortly, it is expected that the RBI will increase the rates for the third time in August.
Meanwhile, the rate of inflation still remains worrisome due to other factors such as the uncertain weather and fluctuating prices in the global market. This can affect the supply of the commodities and hence, can affect the price index.
Cut In Fuel Taxes
Recently, the government also announced that the Centre has decided to cut the excise duty on fuels. Surprisingly, in the fuel and light category, inflation remained high at 9.54 percent although reducing from 10.67 percent in April. Economists believe that the impact of the cut in excise duty will be visible during this month of June.
Apart from this, the RBI also announced an increase in the repo rate for the second time. This has resulted in the commercial banks increasing the interest rates. Loans of all types have become expensive and people have to pay higher EMIs for them all, including for personal, home and car loans. The RBI plans on raising the repo rate again in August, however, the basis points are yet not decided.
Read more: RBI Governor Announces 50 bps Increase In Repo Rate
What Can Be Expected In The Near Future?
According to economists, the decrease in inflation is temporary. The heat waves across northern India have pushed the prices of fruits and vegetables. Due to the dry spells, the government also cut the estimates of wheat production in the country.
Rising energy prices and disruptions in the supply chains from the global market are expected to deviate prices further. Some experts suggest that the Monetary Policy Committee will raise the repo rate to above 50 basis points during this financial year.
Fortunately, the India Meteorological Department has predicted a normal monsoon, hinting at a rise in the Kharif production across India. The farmers in turn have also invested in a surplus account of sustained high food prices. This is further subsidised by the government to compensate for the imports of the crops affected by the war.
India has increased the trade of crude oil with Russia, during a time when the rest of the world has imposed sanctions on it. Russia is now India’s second biggest supplier of crude oil, pushing Saudi Arabia to the third place, with Iraq still holding the first position. The conflict in Ukraine, however, seems to be extending further every day, suggesting that the prices could be seriously affected globally.