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Inflation in India likely to hit a 4-month high

India’s retail inflation jumped even further in May and is on to a four-month high, primarily driven by a surge in energy prices, according to a poll of economists, suggesting more policy tightening from the central bank is coming.

On June 6, the Reserve Bank of India raised the repo rate for the first time since 2014, by 25 basis points to 6.25 per cent, as recent data showed significant increases for both inflation and growth. But the central bank kept its “neutral” policy stance unchanged.

Rising price pressure is a concern for the RBI, with its own projections for inflation raised compared with the ones made in May.

The poll of more than 30 economists taken June 4-8 showed annual consumer price inflation likely increased to 4.83 per cent last month, the highest since January and above April’s 4.58 per cent.

Also read: RBI’s survey states 48% India feels the economic situation has worsened: Congress

If that predicted pace is realised, May will be the seventh month in a row with inflation higher than the RBI’s medium-term target of 4 per cent.

“Consumer price inflation is likely to have accelerated in May, due in large part to a rise in fuel inflation,” noted Shilan Shah, a senior India economist at Capital Economics. “Core inflation will also have remained elevated, and this is likely to be the case for some time.”

Poll forecasts for the data, due to be released on Tuesday, June 12 at 1200 GMT, ranged from 4.1 per cent to 5.7 per cent.

Oil prices hit a 3-1/2-year high last month, led by increasing worries of supply constraints from U.S. President Donald Trump’s decision to withdraw from the 2015 Iran nuclear agreement.

India imports almost 80 per cent of its oil needs and that surge poses a threat not just to inflation but also to the recovering economy, which still is the fastest-growing major economy.

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