A Reuters poll of economists found that retail inflation in India likely cut a three-month downward trend in August as food prices rose, which could add pressure on the Reserve Bank of India to raise interest rates more aggressively in the coming months.
Food inflation, which accounts for nearly half of the Consumer Price Index (CPI) basket, is expected to rise as prices of staple crops such as wheat, rice and pulses have soared due to the record heat wave, putting pressure on household budgets.
While high inflation is a global phenomenon, it is acutely felt in a country like India where millions live in extreme poverty.
Despite the Indian government restricting exports of wheat flour at the end of last month, inflation – according to the consumer price index – is likely to rise to 6.90 percent annually in August, compared to 6.71 percent in the previous month, from September 5 to 8 . A Reuters poll of about 45 economists showed.
The forecast for the data, due at 1200 GMT on September 12, ranged between 6.30 percent and 7.37 percent, with more than a quarter of forecasters expecting 7.0 percent or higher.
“Food prices have actually risen for key grains, pulses and vegetables year on year due to production challenges and shortages caused by the severe heat wave,” said Kunal Kondo, India economist at Societe Generale.
He also said that erratic monsoon patterns across the country suggest there will be more damage to crops, driving up food prices in the coming months.
The Reserve Bank of India’s forecast showed inflation to remain above the upper 6 per cent of the target range until early 2023.
A separate Reuters poll showed that the central bank is expected to raise the repo rate another 60 basis points through the end of March to 6.00 percent from a record low of 4.00 percent in the era of the pandemic.
Interest rates are rising even with the expectation of a sharp slowdown in the economy. Meanwhile, the Reserve Bank of India is spending billions of dollars a month in currency reserves to defend the weak rupee, which has been trading near record lows of around 80 per dollar for several months.