What’s Happening?
India’s inflation touched 6.5% in March. This is way higher than what the Reserve Bank of India (RBI) had suspected. Geopolitical tensions between Russia and Ukraine with a steep rise in edible oil prices and fuel prices are worsening the global situation tremendously. In the recent monetary policy, the RBI had acknowledged that inflation is the main priority instead of India’s growth.
Rising prices everywhere are a big dampener to the consumer’s sentiment. Food inflation has gone up, but core inflation has also gone up (6.4% in March), which excludes food and fuel prices. All sectors of the economy are worried, especially the hospitality space, because it was completely shut during the pandemic. Rising inflation means less recreational activities and travel. This can leave the space dry again.
How Worse Can It Get?
The RBI has said that until the geopolitical situation gets better, the global commodity prices will continue to remain volatile. That’s why all eyes are on the Russia-Ukraine war. Recently, Russia’s President Vladimir Putin said that peace talks with Ukraine are at a dead end. This only means that Russia will continue the war. And as long as Russia pursues its goal, the inflation scenario won’t change in the near term.
What Lies Ahead?
In the current inflationary environment, many feel that a rate hike by the RBI is imminent in June. Central banks in the West have already gone on a rate hike spree to contain inflation. The question now is how much worse will the inflation get a post rate hike and is it too late for a rate hike? One can only discover the answers to this in the following monetary policy. Until then, let’s be prepared for the worst.
