Is India’s inflation problem over? Here’s what economists say

By India Today Business DeskConsumer price index-based (CPI) inflation likely eased to an 18-month low in April due to moderation in rising food and fuel prices, according to a Reuters poll of 53 economists.

The poll suggested that food inflation, which accounts for nearly half of the overall consumer price basket, may have fallen in April due to softer cereal and edible oil prices.

On average, the economists predicted retail inflation to have fallen to 4.80 per cent in April from 5.66 per cent in March. This means retail inflation would continue to remain below the Reserve Bank of India’s upper tolerance level for the second consecutive month.

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Radhika Rao, senior economist at DBS Bank, wrote that food inflation was a mixed bag on the month, with cereals and vegetables easing, while pulses and milk rose. Rao said lower energy prices continued to filter through to fuel components as well.

“With inflation off the boil besides core (inflation), the RBI is likely to remain on an extended pause,” Rao said.

While inflation remains below the RBI’s tolerance level, economists believe it would remain well above the central bank’s medium-term target of 4 per cent in the coming quarters. As per the poll, it would average 5.3 per cent for the current fiscal year and 5 per cent for the next.

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A drop in inflation would be positive for the RBI which kept its main interest rate unchanged at 6.50 per cent in April. If things go according to plan, the RBI may not hike interest rates anymore this year.

However, economists predict inflation to rise again after bottoming out in April and May.

Upasana Bhardwaj, chief economist at Kotak Mahindra Bank, said, “We are looking at April and May being the bottom on inflation and then we start seeing slight upward movement above 5 per cent, although below the RBI’s 6 per cent.”

“The near term looks comfortable in terms of inflation. But eventually, the RBI will have to target its real rates being higher than 1 per cent. For that to be sustained, they will have to be on a pause. A rate-cutting cycle at this moment may be slightly premature,” Bhardwaj said.

The retail inflation data for April will be released on Friday.