'Domestic inflation likely to raise anxiety levels in the RBI; expect status-quo in August'

Due to several factors global and domestic, inflation may remain elevated in the coming months. In addition, CPI inflation increased to 6.30 per cent on yearly basis in May 2021 as compared to 4.23 per cent in April 2021, stated a report by SBI.

According to Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, “In the coming months, domestic inflation trends are likely to raise anxiety levels in the RBI and the MPC.” In the SBI report, it was stated that “driven by several global and domestic factors, inflation may remain elevated in the coming months. Specifically, the faster than anticipated and robust recovery in some of the advanced countries is likely to exert upward pressure on international commodity prices, including oil. The latter being an intermediate good in leading EMEs, it would generate cost push inflation.”

Commenting on the rise of CPI inflation, SBI stated, “This 200 bps increase on yearly terms and 100 bps increase in monthly terms is a matter for concern and even small items are showing disproportionately larger increases.” It stated raising food and commodity prices as well as localised lockdowns have driven the rise in the headline numbers.

In addition, the SBI report stated, “We expect a status-quo in August. We believe RBI would still try to find a marriage of convenience of regulatory and developmental measures and monetary policy in August policy. The die has been cast, but the RBI can still hold out with a firm message of ratcheting up inflationary pressures in its August policy statement.”

The report also stressed the need for India to meaningfully vaccinate a large segment of the rural population in the second quarter. It believes it can effectively beat the new mutant strain in the town.