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Summary
India’s run of low inflation may be nearing an end, going by February’s WPI uptick. Retail prices, which monetary policy goes by, are looking up too. The key variable for the central bank’s approach in the face of an energy shock, though, may be a time-line.
India’s recent run of subdued inflation may be staring at an end. Data released on Monday showed wholesale inflation hitting an 11-month high of 2.1% from a year earlier in February. Consumer inflation, measured by a reset gauge, was 3.2% last month.
Both these readings are within the Reserve Bank of India’s (RBI) comfort zone, the latter more pertinently, given that it is the target variable for its monetary policy goal of price stability. Retail inflation below the 4% mid-point of its target range was good news.
But what matters are upcoming readings, which will lose a favourable base effect just as the Iran war turns energy prices volatile. Crude oil prices have already soared past $100 a barrel and could rise further to stoke fuel prices up all around, with even administered prices under upward pressure from enlarged import bills. Dearer energy tends to feed general inflation.
Central banks across the world need to assess how long supply disruptions will last to judge the extent to which they could treat price flare-ups as transitory. RBI will surely be watching closely—not just West Asia’s war, but also New Delhi’s measures to keep fuel prices steady within its fiscal constraints.
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