Recently, NSO has released data on retail prices and industrial production which is creating a cause of concern.
What does the data reflect on?
The inflation quickened to a four-month high of 5.52% in March and will continue to accelerate.
The estimate of Index of Industrial Production for February shows that output-at mines, manufacturing sector, electricity- shrunk 3.6%, following the January’s 0.9% contraction.
This output contraction in the factories is for a second straight month.
High food and fuel costs are the main drivers of price pressures.
Inflation in pulses accelerated to 13.3% from 12.5% in February, oils and fats saw a more than 400 basis points surge to 24.9%.
Meat, fish and eggs accelerated in double-digits while the inflation in the food and beverages got raised by almost 100 basis points to 5.24%.
Though the pump prices of petro products remained virtually frozen due to assembly elections, transport and communication saw more than 100 basis points acceleration to 12.6%.
What is the future prospects?
In the recent RBI policy statement, the central bank hoped that arrivals from the Rabi harvest and imports would likely augment pulse supply thereby moderating the prices.
Similarly, on edible oils the RBI is banking on the government to cut import duties and offer incentives to boost domestic productivity.
Petrol price pressures are unlikely to ease significantly unless Centre and States agree to forego some near-term and reduce fuel taxes.
RBI is stridently seeking a reduction in these levies and foresees inflation averaging to 5.2% in the April-June quarter.
Policymakers are facing tough choices in trying to bring demand back to pre COVID levels.
But any action must be taken without accelerating inflation, undermining the purchasing power and the overall economic stability.
