Vendors wait for customers at a wholesale vegetable market in Chennai. Photo: AFP / Arun Sankar

India’s retail inflation in April has soared to an eight-year high, driven by rising food and fuel prices.

Consumer price-based inflation was 7.79% in April, up from 6.95% in March and 4.43% in April last year. The previous high was 8.33% in May 2014.

According to data released by the National Statistical Office, inflation in the food basket rose to 8.38% in April from 7.68% in the preceding month and 1.96% in the year-ago month.

In the “fuel and light” category, retail inflation jumped to 10.80% in April this year from 7.52% in the preceding month.

In the “oils and fats” category, inflation remained at an elevated level of 17.28% (18.79% in March 2022) during the month, as India imports a major portion of sunflower oil from Ukraine. Indonesia has also imposed curbs on palm oil exports.

The vegetable category also rose to 15.41% in April against 11.64% in March as transportation costs increased due to hikes in fuel prices. Fertilizer prices have also gone up since Russia invaded Ukraine.

Retail inflation has remained above 6% since January 2022. The Reserve Bank of India has been mandated by the government to ensure that inflation remains at 4% with a margin of 2% on either side.

Interest rates

This elevated inflation level has raised speculation that the Reserve Bank will go for another interest rate hike in next month’s policy review to tame price rises.

Earlier this month, the monetary policy committee of the central bank called an emergency meeting and hiked the repo rate by a whopping 40 basis points with the aim of taming rising inflation.

It was the first increase in rates since August 2018 and it now stands at 4.40%. It is a major policy shift from the central bank’s earlier focus on maintaining a low-interest regime to stimulate growth from the Covid-19 induced slowdown.

The current uptick in inflation comes at a time when the Indian economy has been showing signs of recovery after a decline in the number of Covid-19 cases and the easing of lockdown curbs. Experts fear a long spell of inflation will dampen growth.

Former Reserve Bank governor Raghuram Rajan said India’s inflation is going up and the central bank at some point will have to increase interest rates. He pointed out that the rest of the world was already doing it.

The US Federal Reserve also increased its interest rate by 50 basis points, the highest in 22 years, and has hinted at more hikes in the future.