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High Food, Fuel Prices Expected to Push India’s Retail Inflation Up

A recent Reuters poll indicates a possible increase in India’s retail inflation during February, on the back of higher food and fuel prices in the country. Economists expect retail inflation in India to have risen from 4.06% in January to 4.83% in the month of February.

Despite the increase in inflation, it remains comfortably within the higher limit of 6% set by the central bank, the Reserve Bank of India (RBI). In the most recent monetary policy committee convened last month, members had shared worries about risks of increasing inflation, despite which the RBI held its repo rate steady at 4% to maintain liquidity.

Indian bond yields have also witnessed a spike over recent sessions, like government bond yields around the world that strengthened and boosted concerns of reflation trade. Markets are widely expecting the global economy to recover at a faster pace, on the back of increased stimulus efforts and the COVID-19 vaccine rollout, which could potentially drive inflation higher.

India’s economy looks set to recover from the pandemic-inflicted damage, posting a growth in the previous quarter after contracting for the previous two consecutive quarters. Economists polled by Reuters expect industrial production to grow by 0.9% for the month of January even as infrastructure output returned to growth during the period, raising hopes for further improvement in economic conditions during the present quarter.

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