Genie’s out, inflation to become more broad-based this fiscal

The Indian economy may have won the rounds against Covid-19, but there’s a new opponent in the ring now — rising prices — which are threatening to deliver a one-two punch.

Inflation based on the Consumer Price Index (CPI) has risen consistently for the past 7 months, reaching an 8-year high of 7.8% in April.

Such persistent inflation, including the rising core part, is set to become the biggest headwind to India’s economic recovery this fiscal.

CPI-linked inflation may have spent three years at above 4%, the mid-point of the target range set by the Reserve Bank of India (RBI). But it is set to become broad-based across most goods and services this fiscal, ominously rising to 6.3% in fiscal 2023.

In this insight, we explain the evolution of inflationary trends and its implication on the economy, and assess the policy options to deal with it.