Testing tolerance

Price pressure will need a monetary response

The consumer price index-based inflation rate for March has surprised analysts. While economists were expecting the number to be higher than the upper end of the tolerance band, most didn’t expect it to surge to almost 7 per cent. The rate at 6.95 per cent (a 17-month high), its broad-based nature, and the sequential momentum suggest it is likely to remain elevated in the coming months. This means that the Monetary Policy Committee’s (MPC’s) projection of 5.7 per cent inflation rate for the fiscal year would come under pressure and warrant a different policy response. Although prices witnessed a broad-based