SBI Ecowrap: 59 pc of increase in inflation due to Ukraine war

According to the State Bank of India's Ecowrap research study, the majority of the increase in inflation is due to the Russia-Ukraine war, and blaming central banks is fruitless. According to the research, inflation is unlikely to "correct anytime soon."

The impact on food costs has been disproportionately high in rural areas, and the impact on petrol prices and pass-through has been disproportionately high in metropolitan areas. Since February, food and beverages, petrol, and light and transport have accounted for 52% of the overall increase in inflation.

"When we factor in the impact of input costs, especially in the FMCG industry, as well as the contribution of personal care and affects, the total impact at the national level is 59 percent, completely due to war."

In response to the sustained rise in inflation, the RBI is almost certain to raise rates in June and August, bringing them to the pre-pandemic level of 5.15 percent by August, according to the report. However, it cautioned that it is unclear if inflation will fall as a result of rising interest rates if the war continues. It further stated that the concern is whether high borrowing rates will have an impact on growth, particularly at a time when the economy is recuperating from the effects of COVID-19.

"We must back the RBI in its efforts to control inflation through interest rate hikes." A higher interest rate will also benefit the financial sector since risks will be revalued, it said.

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