Food prices rose 1.14% over April levels. Image used for representative purpose only. 
| Photo Credit: K. Murali Kumar

Inflation in India’s wholesale prices accelerated to a 15-month high of 2.61% in May, more than double April’s pace, with food inflation surging to a 10-month peak of 7.4% driven by steeper prices for vegetables, fruits, pulses and cereals, and a resurgence of price rise in manufactured products after 14 months of decline.

Economists said the rise in wholesale inflation in May signals there is room for a further surge in consumer prices despite retail inflation easing to a 12-month low of 4.75% last month, especially as food and industrial input prices are spiking globally. May was the seventh month in a row that the WPI rose on a year-on-year basis after seven consecutive months of decline, and it is expected to rise over 3% this month.

On a month-on-month basis, the Wholesale Price Index (WPI) was up 0.2% in May, easing from a ten-month high of 0.8% a month earlier, with food prices rising 1.14% over April levels and manufactured products’ prices up 0.64%.

The heatwaves in May helped fire up the inflation rate for vegetables to the highest level in nine months at 32.4%, and a six-month high of 5.8% for fruits. Price rise in cereals sped to 9%, while that for pulses reversed direction to hit a six-month high of 22%.

Within vegetables, tomato prices were up 64.5% in May from 40.6% in April, while inflation in onion and potato dropped slightly to a tad over 58% and 64%, respectively. Bank of Baroda chief economist Madan Sabnavis said these spikes in vegetable prices were partly due to supply shortfalls and the heat wave aggravated the challenge. “This is a major concern as it will keep up the pressure on the inflation till the next crop comes,” he told The Hindu.

India Ratings flagged similar concerns about pulses prices remaining elevated in double-digits as the new crop would be harvested only in October-November. “Elevated food inflation at the wholesale level is worrisome as this would keep retail food prices firm even going forward. Retail food inflation has been above 8% for the past seven months,” said the firm’s senior director and principal economist Sunil Kumar and senior analyst Paras Jasrai in a note.

India Ratings expects retail food inflation to remain over 8%, with wholesale prices expect to rise further to 3.5%, in June. CareEdge Ratings’ chief economist Rajani Sinha also pointed out that industrial metal prices have risen 9.3% since March-end and food prices are increasing globally.

“Positive rate of inflation in May is primarily due to increase in prices of food articles, manufacture of food products, crude petroleum & natural gas, mineral oils, other manufacturing, etc,” the Commerce and Industry Ministry said.

Food inflation surged to a four-month high of 8.7% in April from 8.52% in March. Representational file image.
| Photo Credit: Reuters

Consumers faced a further acceleration in steep food prices in April, even as India’s overall retail inflation remained virtually unchanged at 4.83% last month, compared with 4.85% in March.

Food inflation surged to a four-month high of 8.7% in April from 8.52% in March, with rural consumers witnessing a sharper uptick of 8.75% in food prices. The gap between urban and rural consumers’ inflation experience remained sharp for the second successive month with rural households seeing a 5.43% rise in prices, while the overall inflation rate faced by urban consumers remained virtually unchanged from 4.14% in March to 4.11% in April.

On a month-on-month basis, price levels rose about 0.5%, with urban consumers facing a sharper uptick in overall prices as well as food items. Food prices rose 1.03% from March levels in urban India, while the rise was more subdued for their rural counterparts at 0.59%. The Consumer Price Index (CPI) was up 0.6% over March for urban households, while it was 0.37% higher for rural India.

The Reserve Bank of India (RBI) expects retail inflation to ease to an average of 4.5% this year from the 5.4% clocked in 2023-24, with the ongoing April to June quarter expected to see an average inflation of 4.9%. With April reporting a marginally lower inflation rate than the RBI’s projected average for the quarter, there could see some hardening in prices over this month and June.

The government has tasked the Reserve Bank to ensure inflation remains at 4%, with a margin of 2% on either side.

Ease in inflation helped by sharp drop in fuel and light prices

Within the food basket, vegetables’ inflation cooled marginally from 28.3% in March to 27.8%, staying in double digits for the fifth consecutive month. Pulses also reported double-digit inflation for the 11th straight month, at 16.84% in April, marginally lower than the 17.7% uptick in March.

However, inflation in cereals rose to 8.63% from 8.4% in March, while meat and fish prices hardened by 8.2% compared with 6.4% a month earlier. Fruits also reported higher price rise at 5.22%, from 3.1% in March. Egg prices were up 7.1%, lower than the 10.33% rise recorded in March.

Sugar and spices provided some succour to households’ food budgets, with the pace of price rise in the former easing below 6% in April from 7.2% in March, and spices inflation easing to 7.75% after a 22-month streak of over 10% inflation. Milk inflation also moderated to just under 3% from 3.4% in March.

The fractional easing in the headline inflation rate in April, despite the uptick in food price rise, was facilitated by a sharper drop in fuel and light prices, which were down 4.2% compared with a 3.2% decline in March, and aided by mildly lower inflation in some other items. These include clothing and footwear, pan, tobacco and intoxicants, housing, health, recreation and amusement.

The inflation in education as well as the transport and communication segments eased by about 0.5 percentage points each to 4.2% and 1.1%, respectively. However, prices for personal care and effects surged 7.5% in April, hardening from just over 6% in March. On a sequential basis, these items’ prices rose 3%.

Benign base effects from last year and this month’s above-normal temperatures and heatwave conditions could exacerbate food and beverages inflation further, which might push up the headline consumer inflation rate to a five-month high of 5.1%-5.2% in May, reckoned Aditi Nayar, chief economist at rating firm ICRA.

Among the major States, Odisha (7.05%), Assam (6.08%) and Haryana (6.06%), reported the highest inflation in April, while nine other States experienced a price rise of over 5%, including Bihar, Uttar Pradesh, Telangana, Madhya Pradesh, Karnataka and Rajasthan. In all, inflation was higher than the national average in 14 of 22 major States for which the National Statistical Office calculates inflation rates, including Gujarat (4.94%) and Kerala (4.84%).

On the other hand, consumers faced the lowest price rise in Delhi (2.29%), followed by Uttarakhand (3.58%), Maharashtra (3.66%), and West Bengal (3.68%).

New Delhi:

Finance Minister Nirmala Sitharaman today said the government’s top priority is to tame inflation to ensure sustained economic growth.

Addressing the B20 Summit India, being hosted by the Confederation of Indian Industry (CII), the minister said the GDP numbers for the first quarter, to be released this month, should be good.

Observing that elevated interest rates for considerable time hampers recovery, Ms Sitharaman said, “my priority is to tame inflation.”

Retail inflation soared to a 15-month high of 7.44 per cent in July, mainly on account of spiralling prices of tomatoes and vegetables.

On growth, she said that India has been able to accelerate the pace of economic reforms and the first quarter GDP numbers “should be good”.

The National Statistical Office is scheduled to release the GDP numbers for the first quarter on August 31.

Ms Sitharaman said that “green shoots’ of private capital expenditure can be felt on back of the government’s push for capital expenditure in the budget.

She also spoke about climate financing and reforms being undertaken by the government to attract foreign investments as they are vital for economic growth.
 

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

IMF delegates participate in a news conference on the IMF release of the World Economic Outlook Update, at IMF headquarters in Washington, DC, on July 25, 2023.
| Photo Credit: AFP

The IMF on July 25 projected a growth rate of 6.1% for India in 2023, which is a 0.2 percentage point upward revision compared with the April projection.

This is reflective of the “momentum” from stronger-than-expected growth in the fourth quarter of 2022 as a result of stronger domestic investment, the International Monetary Fund (IMF) said.

“Growth in India is projected at 6.1% in 2023, a 0.2 percentage point upward revision compared with the April projection,” it said in its latest update of the World Economic Outlook.

According to the report, global growth is projected to fall from an estimated 3.5% in 2022 to 3% in both 2023 and 2024.

While the forecast for 2023 is modestly higher than predicted in the April 2023 World Economic Outlook (WEO), it remains weak by historical standards.

The rise in central bank policy rates to fight inflation continues to weigh on economic activity. Global headline inflation is expected to fall from 8.7% in 2022 to 6.8% in 2023 and 5.2% in 2024, it said.

Underlying (core) inflation is projected to decline more gradually, and forecasts for inflation in 2024 have been revised upward, it said.

The IMF said the recent resolution of the U.S. debt ceiling standoff and, earlier this year, strong action by authorities to contain turbulence in the U.S. and Swiss banking, reduced the immediate risks of financial sector turmoil.

This moderated adverse risks to the outlook, it said.

However, the balance of risks to global growth remains tilted to the downside.

Inflation could remain high and even rise if further shocks occur, including those from an intensification of the war in Ukraine and extreme weather-related events, triggering more restrictive monetary policy, the report said.

Financial sector turbulence could resume as markets adjust to further policy tightening by central banks. China’s recovery could slow, in part as a result of unresolved real estate problems, with negative cross-border spillovers, it said.

“Sovereign debt distress could spread to a wider group of economies. On the upside, inflation could fall faster than expected, reducing the need for tight monetary policy, and domestic demand could again prove more resilient,” said the WEO report.

The IMF said central banks in economies with elevated and persistent core inflation should continue to clearly signal their commitment to reducing inflation.

A restrictive stance — with real rates above neutral — is needed until there are clear signs that underlying inflation is cooling.

“With fiscal deficits and government debt above pre-pandemic levels, credible medium-term fiscal consolidation is in many cases needed to restore budgetary room for manoeuvre and ensure debt sustainability,” the IMF said.

Union Finance Minister Nirmala Sitharaman addresses a press conference on Union Budget 2023-24, in Jaipur on February 20, 2023.
| Photo Credit: PTI

The measures like increased capex, boosting the green economy and initiatives for strengthening financial markets announced in the Budget 2023-24 are expected to promote job creation and spur economic growth, the Finance Ministry said on Thursday.

In its Monthly Economic Review, the Ministry said during the December 2022 quarter, various High-Frequency Indicators (HFIs) pointed towards a slowdown in general, as monetary tightening appeared to have started weakening global demand.

“This may continue in 2023 as various agencies have forecasted a decline in global growth. Apart from the lagged impact of monetary tightening, the uncertainties emanating from the lingering pandemic and relentless conflict in Europe may further dampen global growth,” it noted.

Even as global output is expected to slow, the IMF and World Bank project India to be the fastest-growing major economy in 2023.

“As in 2022-23, India faces the coming financial year with confidence imparted by underlying and overall macroeconomic stability while being on the alert against geo-political and geo-economic risks,” the monthly review said.

The Economic Survey 2022-23, tabled in Parliament ahead of the Budget, had pencilled in a growth rate of 6.5% for FY24 but with more downside than upside risks, it added.

“Inflation risks are likely to be lower for India in FY24. Still, they will not have vanished as global conditions, such as geopolitical conflicts and consequent supply disruptions that contributed to higher inflation in 2022 are still present,” it said.

Predictions of a return of El Nino conditions in the Pacific could presage a weaker monsoon in India, resulting in lower output and higher prices. Similarly, as with prices, external deficits may be a lesser challenge in FY24 than in FY23, but close attention to trends in international trade and capital flows will be warranted.

The 2023-24 Budget has yet again provided a capex stimulus to growth by increasing the Centre’s capex budget to ₹10 lakh crore — 33% higher than the previous year.

“By doing this, the Government is continuing its push towards investment-driven growth amid global headwinds…The measures announced in the Union Budget FY24, such as a rise in capital expenditure, increased focus on infrastructure development, boost to the green economy, and initiatives for strengthening financial markets etc., are expected to promote job creation and spur economic growth,” it said.

The Budget FY24 has also announced measures to increase spending and consumer demand. These include the rationalisation of tax slabs and an increase in the basic exemption limit from ₹2.5 lakh to ₹3 lakh under the New Personal Income Tax Regime (NPITR).

“The Union Budget has further introduced important process measures, such as the setting up of the National Financial Information Registry, the implementation of a single window system, and reforms in property-tax governance, among others.

“These will improve processes in the financial market and, in turn, enable regulators to create a more effective feedback mechanism to review regulations,” the Ministry’s monthly review report said.

The steps announced in the Union Budget FY24 will sustain the growth momentum that has characterised the Indian economy in the current year while aiding in addressing inflationary pressures. Even though the Consumer Price Index (CPI) inflation rose to 6.5% in January 2023, headline inflation in India has been showing a downward trend in the second half of FY22, it added.

Measures announced for the MSME sector will likely reduce the cost of funds and aid small enterprises. Revision in tax slabs under the New Personal Income Tax Regime is expected to boost consumption, thus providing more impetus to economic growth. Easier KYC norms, expansion of DigiLocker services, and overall impetus on digitisation and last-mile connectivity are predicted to strengthen financial markets, the report said.

“Thanks to the emphasis on macroeconomic stability in the last several years, the Indian economy faces the year ahead with confidence while being mindful of the risks,” it added.

Representational image.
| Photo Credit: Kommuri Srinivas

A Finance Ministry report on September 17 underlined the need for deft management of stocks of agriculture commodities in view of lower crop-sowing for the Kharif Season, stressing there should be no room for complacency on the inflation front.

Overall, inflationary pressures in India appear to be on a decline with a pre-emptive set of administrative measures by the government, agile monetary policy and easing of international commodity prices and supply-chain bottlenecks, according to the monthly Economic Review released by the Finance Ministry.

However, it said, there is no “room for complacency on the inflation front as lower crop-sowing for the Kharif season calls for deft management of stocks of agricultural commodities and market prices without unduly jeopardising farm exports.”

India’s rice production could fall by 10-12 million tonnes during the Kharif season this year due to a fall in paddy sowing area, Food Secretary Sudhanshu Pandey had said earlier this month.

The Kharif season contributes about 80% of India’s total rice production.

There was a huge lag in paddy sowing in the states of Jharkhand (9.80 lakh ha), Madhya Pradesh (6.32 lakh ha), West Bengal (4.45 lakh ha), Chhattisgarh (3.91 lakh ha), Uttar Pradesh (2.61 lakh ha), and Bihar (2.18 lakh ha) so far this kharif season.

Paddy is the main kharif crop and its sowing begins with the onset of the southwest monsoon from June and harvesting from October onwards.

Observing that India’s growth has been robust and inflation in control at a time when slowing growth and high inflation are afflicting most of the major economies of the world.

The report further said inflation in India, a net commodity-importing country, has been a by-product of externally situated exogenous pressures.

“Increase in international prices was reflected in an uptick in domestic prices, though the increase in domestic prices was relatively modest on account of the timely interventions taken by the government. Further, as these external pressures ease, inflationary pressures in India are also likely to subside,” it said.

Several indicators are already pointing to the easing of external pressures, the report said, adding, industrial metals and edible oil prices after peaking in March 2022, have softened, led by recessionary fears in advanced economies.

Crude prices have dropped 19.1% by August since the peak in the month of June 2022 and supply chains are getting restored with decline in port congestion.

The impact is already reflected in the decline in retail and WPI inflation since April 2022. Retail inflation eased to 7% in August as compared to 7.8% in April 2022.