As an aftermath of geopolitical tensions, the inflation trajectory of India hits new high. Now inflation soars to its highest point in decades. From fuel to food – everything will become more expensive in the coming months.
Rise in prices of daily necessities continues to cause a serious concern as nations struggle to repair the losses caused by the Covid-19 waves.
When the price pressure began to build up in 2020 and all of 2021 because of demand-supply imbalances, people expected the inflation to be temporary. But, in the present scenario, we can no longer term inflation as “transitory”. The rapid increase in interest rates by leading banks around the globe tells the same story.
What is evident is that the major drivers of inflation are not in the control of these banks. Some of those include: Russia-Ukraine war, lockdowns in Chinese cities, and EU sanctions. Therefore, for 2022’s latter half, the IMF predicts an inflation of 5.7 % for advanced nations, and 8.7 % for advancing economies like India.
As India’s economy depends largely on its imports, inflation is consequentially supply-led. Owing to the negative international spillovers due to geopolitical tensions, the inflation trajectory of India jumps upwards. In its latest policy meeting in June, The RBI has revised its inflation estimation to 6.7 % for the financial year of 2023. In an attempt to tame inflation, in the past 2 months, the Reserve Bank has enhanced the repo rate to 4.9%.
What does it mean for the common man?
For an economy on the path of rebounding after being battered by the global pandemic, the masses are bound to suffer. Just like the prices of vegetables, oils, fish, cereals, and meat, the inflation in consumer food rates reached its highest in 16 months at 7.7% in March 2022. As a result of rising global energy rates, domestic fuel rates are expected to remain volatile. Even if the Central Government has reduced the excise duty on diesel and petrol, volatility in worldwide crude prices might stunt further reduction in price of domestic fuels. So, Indians have no option but to bear the weight and try not to succumb to the price pressures.
Food is about to get costlier:
Food occupies 39% of the space in the inflation basket. So, alteration is food prices greatly impact the consumer inflation rates. After the corona virus, now the Russia-Ukraine situation has exacerbated global edibles’ prices. The war has intensified problems such as food shortages, supply disruption and hoarding. As an outcome, international food cost index has surged 157.3 points.
In addition to that, costs of agricultural inputs like pesticides, fertilizers, animal feeds, and diesel are also on the rise. This would further escalate the prices of edibles in India
How long with the soaring inflationary trend remain?
Despite limited transmission of price from manufacturers to buyers because of weak demand, for most of 2022, in core areas the inflation was stable at 6% approximately. As prices continue to elevate, input expenses harden further, shrinking the profit margin for producers. 2023 is likely to witness more consumption demands after the revival in various service sectors. So, the inflationary pressure on the Indian economy will grow initially due to increase in domestic demand.
International Monetary Fund’s World Economic Outlook in its April 2022 edition, anticipates the retail inflation of India for 2022-23 at 6.1%, much higher than its projections for Europe (which is 5.3%), but lower than the US (at 7.7%) and the UK (at 7.4%). The same report offers a ray of hope that India’s inflation may lessen to 4.8% in the financial year of 2023-24.
With no instant solution in sight, the ongoing cycle of inflation will be grim and long for Indians. The RBI can no longer deny that the global storm has not spared India, rather hit us quite hard. We many conclude by saying that food and fuel inflation have infested the world, eating into people’s savings and delaying the process of economic recovery for countries. It all depends on how India’s economy unfurls in the near future amidst the growth-inflation predicament and hiking interest rates.
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