The Reserve Bank of India may be forced to act faster on policy tightening after data showed retail inflation spiked sharply to nearly 7 per cent in March, and the fallout from the Ukraine war pushing energy rates higher was expected to add to the already spiralling price pressures.
Indeed, after repeated messages that the central bank was focused more on growth and that inflation was transitory, the Reserve Bank of India, at its recent meeting, reluctantly shifted its policy towards bringing inflation under control.
That shift in the central bank's focus was even before the latest data, which showed retail inflation, calculated based on the consumer price index (CPI), held above the RBI's upper end of the 2-6 percent target band for the third straight month.
While the March inflation figure of 6.95 per cent is sharply higher than February's reading of 6.07 per cent annual rate, it does not yet reflect the full impact of the sharp rise in global crude prices since Russia invaded Ukraine on February 24, as Indian oil retailers only started to increase fuel prices late in March, suggesting there will be no let-up in rising prices for consumers anytime soon.
Indeed, the rate of fuel price revisions restarted on March 22 after being held steady for over four months. Petrol and diesel prices have gone up by 10 per litre, respectively, after 14 rate revisions in the last 21 days.
That suggests the pass-through of those fuel rate hikes is yet to be reflected in other costs, including food, transport, etc.
The RBI left interest rates unchanged at its latest meeting. Still, the central bank may need to act sooner than expected, considering the sharp rise in inflation does not reflect a broader impact on prices of other commodities and food from the pass-through of fuel rate hikes in April.
What is likely to weigh on the RBI is that the US Federal Reserve is predicted to take an even more aggressive rate hike path, with inflation data to be released expected to reflect the sharpest rise in 16 years there.
The latest data was also well above expectations of 6.35 percent, as per a Reuters poll of economists. While none of the economists in the Reuters survey predicted inflation to fall below 6 percent, the highest forecast was 6.5 percent.
Calls for the RBI to act on rates have risen in recent weeks, and the latest data would only increase the criticism that the central bank is behind the curve in controlling inflation.