Wednesday’s inflation print shows us, once again, why central banks and governments, around the world, fear inflation. Once inflation takes root, it is nearly impossible to root out; Heavy suffering especially on the poor, and development not without sacrifice. India’s consumer price inflation (CPI) for September 2022 stood at 7.41% year-on-year, rising sharply from seven per cent in August 22 and well above most estimates.
More worrying than the increase in headline numbers is the sharp rise in food inflation. At 8.41%, up from 7.5% on 22 August, high food inflation is bad news for a country like India, which has a substantial number of people below the poverty line. Sadly, there has been a sharp increase in basic food items like cereals, vegetables, spices, pulses and milk. Vegetable prices have increased from 13.3 per cent in August to 18.1%. The prospects of unseasonal rains and lower rice production indicate that the underlying factors of high inflation today are unlikely to be ‘temporary’.
You might also like
Small Indian cinema rivals big Hollywood studios
Contrary to second quarter stories from India’s two tech giants
Premium Trump Regular in Demand for Consumer Durables
How to transfer shares from one demat account to another
Unfortunately, the bad news doesn’t end here. Core inflation, ie, excluding food and fuel inflation, which should normally be attributable to tighter monetary policy, rose to 6.07% from 5.84% in August. And, as is the case with food inflation, growth is broad-based, with most commodities, housing, clothing, footwear and household goods and services registering an accelerated pace of growth.
All this despite the fact that RBI has been on a tight cycle since May 2022. Policy rates have risen 190 basis points in less than six months. Yet we have seen some relief from inflation, suggesting, however, that tighter monetary policy is no magic wand; It works with long and indefinite intervals.
Add to that a depreciating currency, thanks to the strong dollar; Thanks to OPEC’s decision to cut production, days of high oil prices are likely to return; Festive demand returns after two years of sluggish spending due to Covid, and the RBI’s woes are full of cups. Our excessive reliance on imported oil means there is no escape from higher oil prices coupled with a weaker rupee, even as high prices for imported goods in general mean the war against inflation may ease. Or not likely to win early.
Contrary to what RBI governor Shaktikanta Das claimed in the minutes of the August meeting of the Monetary Policy Committee, inflation has neither “moderated” nor “plateaued”. This is bad news for a central bank whose options are clearly running out. The tight monetary policy of central banks around the world, led by the mighty US Federal Reserve, leaves little room for the RBI to tighten rates. If not in step with the Fed, it certainly cannot afford to be completely out of step.
For the government too, the latest figures are bound to force a rethink. As recently as September 2022, Finance Minister Nirmala Sitharaman did not describe inflation as a “red letter priority”. Speaking at the annual meeting of the India-US Business Council, the FM said inflation has been brought down to a “manageable level”. Obviously not!
No wonder the International Monetary Fund, in the latest update to its World Economic Outlook, has raised its forecast of global inflation for 2022 and 2023 to 8.8% and 6.5%, respectively, while lowering its growth projections. High inflation invariably affects growth adversely, especially when, as we have seen, inflation and inflationary expectations freeze.
The latest figures are noteworthy for another reason. They mark the ninth consecutive month that retail inflation has come in above the upper end of the RBI’s inflation target of 2-6%. Under the inflation targeting (IT) regime adopted as part of the new monetary policy framework in 2016, failure to keep inflation within the target range for three consecutive quarters requires the RBI to write a letter to the government in which its Both reasons for the failure are given. And it proposes to take remedial action to bring back inflation within this range. As part of the blame for today’s high inflation lies with the RBI and MPC for failing to roll back monetary accommodation (correctly extended during Covid) on time, the central bank is in a far-right position today. Is.
Elsewhere in Minto
In Opinion, Deepak Nayyar Argues US Fed’s Intent solution could be worse than the problem. Trivikraman Thampi says overtaxing online gaming The industry will favor gray operators. why did so much Big Tech CEO Grow up in India? Jasprit Bindra replied. tells a long story fight for the money shopper,
catch all business News, market news, today’s fresh news events and breaking news Updates on Live Mint. download mint news app To get daily market updates.