Informist, Thursday, May 5, 2022

--Banking source: March inflation was a negative surprise for RBI

--Prices moved up more than RBI expected in Apr

--April inflation could be high just like March

--RBI concerned CPI may be high 2nd quarter in a row

--RBI sees Indonesia CPO export ban as untenable

--75% of Mar CPI rise due to impact of Europe war

--Most vegetable prices rose in April

By T. Bijoy Idicheriah

MUMBAI - The CPI inflation rate, which hit a 17-month high of nearly 7%, was a negative surprise for the Reserve Bank of India, which had expected the number to be close to 6.5%. With data indicating that prices of most key vegetables and edible oils have further gone up, the central bank now expects the April retail inflation number to be yet another shocker.

"If you analyse the CPI print for March that came on Apr 12, it shows that 75% of the CPI had been affected by the war... As long as the impact of the war persists, inflation pressures are expected to persist," the source said.

India's annual inflation rate based on the CPI rose to a 17-month high of 6.95% in March, primarily due to prices of edible oils and fuels, making it the third straight month that the headline inflation number has breached the upper bound of the Reserve Bank of India's medium-term target range of 2-6%.

The source said, based on the fact that Jan-Mar inflation had breached the upper band of the 2-6% target for the Monetary Policy Committee and April inflation looked set to be elevated, there was a real concern for the RBI that inflation could be high for two consecutive quarters.

The worry stems from the inflation mandate of the RBI's rate-setting panel. Three consecutive quarters of inflation exceeding 6% will be deemed as a failure to meet the mandate, and the RBI would have to formally explain to the government why this had happened and the measures it will take to rectify the situation.

The sudden ban on exports of crude palm oil by Indonesia was not expected, and it came at an inopportune time when edible oil prices were already high due to loss of sunflower oil supply from Ukraine due to the Russian invasion.

However, the source said the export ban may not be tenable for Indonesia. There is already clamour within Indonesia to revisit the export ban, as the southeast nation is world's largest producer and exporter of crude palm oil and the economy relies on such exports. 

Even in the wheat segment, where India is grabbing export market share due to key exporters Russia and Ukraine being off market, there has been a sharp rise in domestic prices mimicking global levels despite ample supply and buffers. The rise in wheat prices had also hurt the pace and quantum of procurement done by state agencies.

The source said even in coarse grains, such as maize, used largely as feed in the poultry industry, there has been a sharp rise in prices tracking global developments, and there is a cascade impact on domestic prices of eggs and poultry products.   End

Edited by Ranjana Chauhan

Cogencis news is now Informist. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2022. All rights reserved.