Inflation nation: Tighten your belt.  The current price increase process is likely to be long and ugly

Inflation nation: Tighten your belt. The current price increase process is likely to be long and ugly – Mail Bonus

Even the gods, it seems, are sung by inflation, according to the experience of loyalists like Shekhar M Shetty. Faced with rising prices on almost everything, is one of the expenses that the 68-year-old entrepreneur has cut into his sacrifices to the deity. “If I spent about 100 rupees a day on puja, now I have reduced it to 50 rupees.

Although he is cutting back on his personal expenses, in his professional image as the owner of Sri Devi Café near Bengaluru East train station, he plans to raise the price of some items on the menu by 5-10 Rs. He knows that customers at his restaurant – where a plate of idli costs 30 Rs – are valuable. He has little choice. “The price of everything has risen – from cooking gas to oil, to electricity and raw materials. I have to raise prices, “says Shetty, who last saw such an increase just over two years ago. His decision is in line with recent advice from the hotel’s Bruhat Bengaluru to raise prices by 10% in the face of rising costs.

As there is no quick fix in sight, it is likely that the current inflation cycle will be long and miserable for India and that tensions that have already begun will intensify.

For two months in a row, in February and March, total inflation in India exceeded the upper limit of 6% set by the Central Bank of India (RBI). In March, the consumer price index (CPI) rose to 6.95%, which is 17-month highs, from 6.1% in February. Both figures are alarming, as they exceeded the accepted inflation target of 2-6%, and do not bode well for an economy that has just begun to recover from the blow of the Covid-19 pandemic. Behind rising prices for cereals, vegetables, meat and fish, oil and fat, consumer food inflation also rose to a 16-month high of 7.7% in March, ringing alarm bells simultaneously in the North Block in Delhi and Mumbai’s Mint Street. Inflation, based on the wholesale price index in India, also rose to 14.6% in March, from 13.1% in February.

With this in mind and, more importantly, almost a week before inflation figures were expected for April – likely to be released on 12 May – the RBI came in with an untimely policy announcement. Two were taken from RBIG’s address by Shaktikanta Das on the afternoon of 4 May. Another, the repurchase rate, which means the interest rate that the RBI lends to commercial banks, was raised by 40 basis points, something experts say. expected not to be until next month. Two, the foreign exchange reserve ratio (CRR) was raised by 50 basis points, which will force lenders to set aside more money with the central bank, thus sucking out an estimated Rs 87,000 million in liquidity from the system. “As several storms hit, our actions today are an important step in bringing the ship into balance,” said Das, calling himself an “eternal optimist”.

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Despite such optimism, the RBI can no longer resist the hurricane that has not spared India and is strong enough to last longer. Fuel and food inflation have consumed the world, eating into people’s savings and slowing economic recovery.

In India, a standard gas tank weighing 14.2 kg now costs Rs 1,000 compared to Rs 581 on May 1, 2020, an increase of 72% in just two years. Similarly, 1 liter of Delhi petrol costs 105 rupees, up from 70 rupees two years ago. The war between Russia and Ukraine, which began in February and is still going on, is primarily responsible for rising energy prices.

DK Srivastava, EY India’s chief policy adviser, says the inflation threat could persist for almost a year. “As India’s domestic inflation is driven by global supply rigidity and high oil prices, it is likely to remain strong for at least three to four quarters. Candidacy factors usually take much longer before the situation improves, “he says.

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Inflation figures in April are likely to be worse. RBI itself has given some clues. “High-frequency price indicators for April indicate sustained pressure on food prices. “At the same time, the direct effects of increases in domestic oil prices on oil products – starting in the second two weeks of March – are flowing into core inflation and are expected to increase in April,” said Das.

The question is, how long will this sharp inflation trend last? The International Monetary Fund’s global economic outlook, April 2022, has forecast 6.1% retail inflation in India for 2022-23, higher than projected in Europe (5.3%) and lower than projected for the UK (7.4%) and the US (7 , 7). %) – areas that have traditionally witnessed low inflation but are now suffering from unusual price pressures. Analysts say that rising commodity prices as well as labor market restraints are the main reasons for such a turnaround. The same report states that retail inflation in India may fall to 4.8% in 2023-24 alone. (Data for countries excluding India are calendar years.)

PRICE TICKETS

People are trying different ways to offset rising costs, caused by a complete storm of factors, from the conflict between Russia and Ukraine to bottlenecks in the supply chain to the ban on palm oil exports from Indonesia. Puja Jaggi and her daughter Shivani, who run the home baking company Baker Aunty in New Friends Colony in Delhi, are in trouble.

“Our sellers have raised the price of everything – from cashews and almonds to even salmon sugar. A cake would cost us 800 to make sooner and we could sell it for 1,100 Rs. But this same cake today costs us 1,100 rupees to make, “says Shivani. “It’s a difficult decision to raise prices because customers will not understand, they somehow expect home bakers to be cheap. On a personal level, says Shivani, there are no expensive purchases on the cards.

A hmedabad based B inu Francis, a 27-year-old technical and marketing consultant, says: “I was going to buy a new phone, but phones are also becoming more expensive due to the trade war and supply chain problems. I will replace the phone battery instead and will get a new one in two years. ”

From individual homes to large conglomerates, a number of such decisions are being made. On Tuesday, the president of Coca-Cola India told ET that more price increases were at stake, but executives from companies such as HUL and Britannia have also expressed similar views. At the same time, Nestle has raised the price of a 70 g pack of Maggi Masala from 12 to 14 rupees.

Among the most tangible inconveniences has been a steady rise in fuel prices. Francis, for example, has postponed his decision to buy a car, given the high price of vehicles and fuel, because it “just does not make sense anymore”.

In Bengaluru, a software engineer in his thirties, who has also asked for anonymity, has postponed his plan to buy a new car in this financial quarter due to higher costs and some recent medical costs. He says that when he buys, he will probably buy a used car. “It makes more sense economically,” he says.

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Economists and analysts do not see any easy short-term exit. ICRA chief economist Aditi Nayar says, however, that a higher base will significantly soften consumer price inflation in May, which is likely to remain above 6%, as the rating agency’s forecast for April is 7.4%. “Although the interest rate increase in June 2022 is still uncertain, we anticipate an additional 35-60 basis point interest rate increase in the remaining half of the current financial year. If the escalation in geographical tensions cools commodity prices, then we expect a break to reassess the impact on growth, followed by 25-50 basis point interest rate hikes in the calendar year 2023, “says Nayar.

Louis Kuijs, chief economist at S & P Global Ratings for Asia-Pacific, says they expect inflation in India to remain high in 2022-23, as higher global commodity prices add to current cost pressures in both industry and agriculture. “As domestic demand improves, we believe that this cost pressure will translate more into retail prices,” says Kuijs.

Along with Shetty from Sri Devi Café, many Indians will have to bear this burden.

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