A surge in global commodity prices and export ban on palm oil by Indonesia have also added to the problem domestically. China’s strict no Covid policy has also hurt global supplies, heightening price pressures. “We expect the RBI to raise repo rates by another 75-100 basis points in the rest of this fiscal, which implies rising cost of borrowing across all instruments. This move cannot bring down food or fuel inflation, but can help check its generalisation by curbing the second-round effects,” according to a report by ratings agency Crisil.
There is also an acknowledgment that some growth may have to be sacrificed in the fight against inflation.
Separate data showed the index of industrial production growth rising by 1.9% in March, higher than the revised 1.5% growth in February but lower than the 24.2% expansion in April 2021. The manufacturing sector rose a paltry 0.9% during the month while mining grew by 4% and electricity by 6.1%. The manufacturing sector has been hit hard by the surging global commodity prices and supply chain disruptions.
Capital goods, a key gauge of investment, rose 0.7% compared to 50.4% in the year earlier period, highlighting the muted pace of investments in the sector. Both consumer durables and nondurables contracted during the month which demonstrated that consumption was yet to pick up due to the headwinds of inflation.