India’s consumer price gains stayed above the central bank’s target, adding pressure on policymakers to stay hawkish despite raising the key rate by 90 basis points this year.
Retail inflation rose 7.04 per cent in May from a year earlier, the Statistics Ministry said in a statement on Monday. That compares with a 7.79 per cent increase in April, and a 7.10 per cent gain seen in a Bloomberg survey of economists.
High commodity prices and supply chain disruptions are straining fragile household budgets and risk hurting India’s nascent recovery. The Reserve Bank of India last week raised policy rates for a second straight month as prices stayed above its 6 per cent ceiling since the beginning of the year. Economists further warn that second-rung impacts could cause inflation to overshoot the RBI’s 6.7 per cent forecast.
Authorities around the world are unleashing greater policy firepower to combat unrelenting inflationary pressures. The central government’s fiscal measures including tax cuts and subsidies on fuel may have helped cool prices.
Inflation is seen peaking only by August given the recent food price increases, said Kanika Pasricha, an economist at Standard Chartered Plc in Mumbai, adding that the central bank may opt for a 50 basis points rate hike in August.
Food prices, which comprise more than half of the inflation basket, accelerated 7.97 per cent in May, while fuel and electricity prices rose 9.54 per cent. Clothing and footwear prices rose 8.85 per cent, while housing prices jumped 3.71 per cent.
Wholesale price inflation, which surged to a three-decade high of 15.08 per cent in April, is seen accelerating further to 15.30 per cent in data due Tuesday, according to a separate Bloomberg survey.