India\u2019s surging inflation is adding to the country\u2019s economic woes, presenting challenges for businesses and policymakers alike as analysts warn of risks that could prevent prices of essential goods easing in the near future.
\nWholesale price inflation jumped 12.94 percent in May, a near 30-year high, driven by soaring fuel prices, while retail inflation hit a six-month peak of 6.3 percent as food and fuel costs rose, exceeding the central bank\u2019s higher band and analysts\u2019 estimates, according to official data released this month.
\n\u201cThe risk of inflation turning persistent exists,\u201d Anubhuti Sahay, head of economics research for South Asia at Standard Chartered, says.
\n\u201c[This is] especially because the rise in May\u2019s consumer price inflation was driven by a broad-based surge, and if commodity prices stay elevated.\u201d
\nA major factor driving the spike in inflation is elevated oil prices, which have been hitting multi-year highs recently. India is heavily dependent on oil imports and this has a knock-on effect on the cost of other goods, including an increase in transportation costs.
\nFresh lockdown curbs imposed during a deadly second wave of Covid-19 have also affected supply chains, putting upward pressure on prices.
\n\u201cInflation pressure may remain high ahead, with upcoming prints looking to be above the May print,\u201d Madhavi Arora, lead economist at Mumbai-based Emkay Global Financial Services, says.
\nThe surge in inflation is posing a challenge for policymakers, with the Reserve Bank of India (RBI) instead focusing efforts on supporting economic growth. The country\u2019s economy has been battered by the second wave of the coronavirus, which has derailed what looked to be a promising start to a recovery after last year\u2019s pandemic-induced recession.
\nIndia\u2019s economy contracted 7.3 per cent in the April 2020 to March 2021 financial year, according to data. Meanwhile, the World Bank this month cut its growth forecast for the current financial year to 8.3 per cent from its earlier projection of 10.1 per cent.
\nThe pandemic\u2019s second wave prompted authorities to introduce fresh lockdown curbs, with fears of a third wave in the autumn. \u201cIndia\u2019s recovery is being hampered by the largest outbreak of any country since the beginning of the pandemic,\u201d the Washington-based lender said.
\nFaltering economic growth leaves the RBI with little leeway to raise interest rates to bring inflation under control because it would raise the cost of borrowing.
\nBut the dilemma for policymakers is that soaring inflation can hamper a pick-up in the economy, particularly as consumer price inflation has breached the RBI\u2019s upper threshold of 6 per cent.
\n\u201cHigh inflation amid low growth impacts disposable incomes and thus aggregate demand,\u201d Ms Sahay says. \u201cIt has the potential to delay the recovery process.\u201d
\nMany businesses are struggling amid the pandemic\u2019s impact and steep inflation is making profitability more challenging. If inflation remains elevated over the coming months, the situation will worsen for many business owners, analysts say.<\/p>\n","protected":false},"excerpt":{"rendered":"
India\u2019s surging inflation is adding to the country\u2019s economic woes, presenting challenges for businesses and policymakers alike as analysts warn of risks that could prevent prices of essential goods easing in the near future. Wholesale price inflation jumped 12.94 percent in May, a near 30-year high, driven by soaring fuel prices, while retail inflation hit […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-199144","post","type-post","status-publish","format-standard","category-business"],"yoast_head":"\n