India’s annual retail inflation accelerated in April to 4.58 per cent.This was mainly driven by faster increases in food and fuel prices.
Core inflation, mainly reflecting firming up manufacturing prices, touched 5.9 per cent, a 44-month high.
Wholesale price inflation in April rose faster than expected, to 3.18 per cent. Annual retail food inflation, which contributes about half of the weight in the CPI index, rose 2.80 per cent in April almost at the same level of 2.81 per cent rise in the previous month.
It’s possible retail inflation could cross the five per cent mark in the next two to three months. As the economy gathers momentum, capacity utilisation could tighten further, which will boost underlying price pressures.
The biggest risk that Asia’s third-largest economy faces is rising crude oil prices, which are at their highest since November 2014 following prospects of new US sanctions on Iran.
India meets 80 per cent of its oil needs from imports. An increase in the oil price could quicken inflation by about one percentage point and reduce economic growth by 0.2 to 0.3 percentage points.
However India’s economic growth could rebound to 7.4 per cent in fiscal year 2018-19 beginning April, from an estimated 6.6 per cent in the previous fiscal year.