India's inflation likely accelerated to an 18-month high in April: Reuters poll

Price tags are seen on the samples of rice and lentils that are kept on display for sale at a wholesale market in the old quarters of Delhi
Price tags are seen on the samples of rice and lentils that are kept on display for sale at a wholesale market in the old quarters of Delhi, India, June 7, 2018. REUTERS/Amit Dave
  • Data due at 1200 GMT, May 12

BENGALURU, May 10 (Reuters) - India's retail inflation likely surged to an 18-month high in April, largely driven by rising fuel and food prices and staying well above the Reserve Bank of India's upper tolerance limit for a fourth consecutive month, a Reuters poll found.

The jump has been long anticipated following the Indian government's decision to wait until after key state elections in March to hike fuel prices. Energy prices globally have soared since Russia's invasion of Ukraine in late February.

Food inflation, which accounts for nearly half the consumer price index (CPI) basket, reached a multi-month high in March and is expected to remain elevated due to higher vegetable and cooking oil prices globally. read more

These factors likely pushed inflation (INCPIY=ECI) in Asia's third-largest economy to 7.5% on an annual basis in April, according to a May 5-9 Reuters poll of 45 economists, from 6.95% in March.

If realised, that would be the highest inflation rate since October 2020 and well above the RBI's upper 6% limit.

Forecasts for the data, due to be released at 1200 GMT on May 12, ranged between 7.0% and 7.85%.

"CPI inflation appears to have surged higher still in April on the back of higher food and fuel prices. The bulk of the impact of the recent fuel prices hikes will be felt in April," said Shilan Shah, senior India economist at Capital Economics.

"We wouldn't be surprised if core inflation has risen too. The risk is that sustained higher inflation drives up inflation expectations, which push core inflation even higher."

To make matters worse, the local price of oil, India's biggest import, has also been subject to upwards pressure from the roughly 4% drop in the rupee this year, with the currency touching a record low on Monday. read more

Wholesale price inflation (INWPI=ECI) was predicted at 14.48%, continuing its double-digit streak for a year. read more

The elevated price outlook pushed the RBI - which only recently changed its focus to price stability from growth - to hike its repo rate for the first time since 2018, lifting it 40 basis points to 4.40% in a surprise unscheduled meeting last week, with more expected to follow. read more

The move came just ahead of the U.S. Federal Reserve's 50 basis point rate hike later the same day. read more

"Inflation could remain above the RBI's target band for three consecutive quarters, marking the first official 'failure' of the monetary framework," noted Rahul Bajoria, chief India economist at Barclays.

Reporting by Arsh Mogre and Prerana Bhat; Polling by Milounee Purohit and Md Manzer Hussain; Editing by Kirsten Donovan

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