Reversing trend, retail inflation inches up to 4.58 per cent in April

NEW DELHI: Inflation firmed up in April as higher food and fuel prices combined to reverse the trend of declining inflation in the last three months.

Two separate sets of data released by the government on Monday showed retail inflation accelerating to 4.58% in April from 4.28% in March while wholesale price inflation climbed to a fourmonth high of 3.18% in April compared with a 2.47% rise in March.

“Bond yields are likely to remain elevated in the near term, given the risk of rate hikes in the second half of the fiscal,” said Aditi Nayar, principal economist at ICRA. The yield on the benchmark 10-year sovereign bond rose 10 basis points to 7.83%, its 27-month high. Bond yields and prices move in opposite directions.

The Reserve Bank of India is expected to keep rates steady following higher inflation in its June 6 policy review though its stance may turn hawkish. “This may result in RBI maintaining status quo on policy rates in its June 2018 monetary policy review. The trajectory of RBIs policy in remainder of FY19 will be governed by the movement of oil prices,” said Devendra Pant, chief economist at India Ratings.

Retail inflation picked up in April for the first time since January. The pace of price gains in April was driven by higher food costs. An early summer heat wave led to a 9.6% rise in inflation in fruits and 7.3% increase in vegetables inflation which fuelled the 2.8% rise in food prices. Core inflation, a measure excluding volatile food and fuel items, climbed to nearly four-year high of about 6%.

“The two inflation indices reveal that prices have started moving in the upward direction as was expected,” said Madan Sabnavis, chief economist at CARE Ratings. CPI is the main inflation gauge that RBI tracks. It has forecast 4.7-5.1% consumer inflation for April-September.

OIL PRICES, RAINS OUTLOOK
The global rise in crude oil prices remains a key risk for the inflation trajectory and the onset and dispersion of the monsoon rainfall and change in minimum support prices (MSP) would influence the trajectory of food prices in the near term. Independent economists expect inflation to remain high on firmer crude prices and MSP-led food inflation.

“We maintain our estimate for FY19 at 4.7% with upward bias. The positive support could come only if we have a solid monsoon performance giving a bumper food grain output,” said Shubhada Rao, chief economist, Yes Bank. Sabnavis said RBI will definitely not lower rates and while status quo would hold for the June policy, upward trends will be looked at when deciding on hiking rates. “We do expect 25 bps hike in rates this year after monsoon sets in and the situation is assessed deeper by the RBI,” he said.