Statsguru: 6 charts show India's inflation concern may not be over soon

Predictions on inflation are likely to be closely watched in the com-ing months. The Reserve Bank of India held on to its 5.4 per cent inflation projection for the current financial year on Friday, even as the World Bank increased its forecast from 5.2 per cent to 5.9 per cent earlier in the week, while projecting a declining trend in the subsequent period (chart 1).

Lower sowing and higher food prices have increased risks to inflation outcomes, along with energy prices. India’s August food inflation was higher than the median value for low-income, upper-middle-income, and high-income-countries (chart 2), though in line with its lower-middle-income peers.

  

Global export restrictions that began after the Ukraine crisis and can affect food security have persisted into 2023. According to the World Trade Organization, multiple reasons including the ongoing food crisis, rising energy costs, and lower agricultural yields have led to the persistence of these measures (chart 3).

The World Bank has also predicted a hit to many of the key drivers of economic growth. Private consumption is one, affected in part by inflation. It had predicted a 6.9 per cent rise in private consumption for 2023-24 in its April fore- cast, but reduced it to 5.9 per cent in October. It also expects lower gross fixed capital formation. The predicted growth in export of goods and services has fallen from 9.2 per cent in April to 0.9 per cent in October (chart 4).

 

A key variable is oil, which is expected to see volatility in light of the Israel-Palestine conflict. India’s high energy imports mean that higher oil prices affect India more than most of its Asian peers. Nomura estimates a 0.25 percentage points rise in inflation for every 10 per cent increase in oil prices (chart 5), according to a September 29, 2023, report. India’s economic growth takes a bigger hit, too. Every 10 per cent rise in oil prices is said to affect economic growth by 0.1 percentage points (chart 6). Oil prices were at $91.54 per barrel on September 29. They have moderated since, trading at around $85 on Friday, before the escalation in hostilities.