NEW DELHI: The RBI is likely to become worried if inflation exceeds 6 percent for three consecutive quarters, especially if energy costs continue high, according to Emkay Global Financial Services report.
With rising food prices in the short term (summer effect, international pricing, increased transportation costs, supply chains) and sustained input cost pressure in the non-food segment, inflation is now expected to exceed 6 percent in FY23.
The March 22 reading reinforces forecasts for a rate hike on June 22. We believe that a rate hike of up to 100 basis points could occur in FY23. With the RBI now indicating its desire to keep real rates neutral, the terminal rate could rise a tad from 5.25 percent, according to the report.
Inflation in March 22 soared to nearly 7 percent, reflecting a broad-based increase in food and non-food prices. Higher shipping and fuel costs appear to have harmed perishable food goods. We are unlikely to see any price relief in the near future, as supply-chain price pressure and the summer months continue to weigh down, according to the analysis. The continuation of input cost pressure, which has begun to trickle to output prices, was reflected in core inflation of 6.6 percent.
The March inflation reading is significantly above the RBI's target range, and the next two quarters are also expected to exceed 6 percent, putting pressure on the RBI to act sooner rather than later. We expect April inflation to be 7.2 percent, albeit peaking, providing pump prices stabilise in the coming months. With food prices expected to rise in the short term (summer effect, international pricing, increased transportation costs, supply chains) and sustained input cost pressure in the non-food segment, we now expect inflation to reach 6 percent in FY23.
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