The rbi's efforts to achieve a leaner inflation print have a 'core' problem

The rbi's efforts to achieve a leaner inflation print have a 'core' problem

The latest retail inflation print for the month of June may have stayed flat at 7 per cent but a closer look at the numbers reveal a sticky core that makes RBI's fight against rising prices difficult.

Apart from a breather in June largely owing to government's intervention on the fiscal front by lowering taxes on fuel, the overall inflation trajectory still looks uncertain.

Global uncertainty looms large amid fears that aggressive central bank manoeuvres could tip the advanced economies into a recession.

The RBI is no exception as it hiked the key interest rates by 90 basis points so far in this fiscal at a time when India's economy was crawling out of a pandemic-imposed slowdown. The RBI has lowered India's economic growth projection to 7.2 per cent for FY23.

The core inflation, which excludes food and fuel, rose by 6 per cent in June.

One of the worst-hit areas during pandemic was the hospitality sector. The reopening of services sector threatens to further exacerbate the inflation problem as demand surges amid supply disruptions.

‘A deep dive into the core inflation basket suggests that firms continued to pass on higher input costs to consumers, and the services sector reopening also added to price pressures,’ Nomura said in a latest report.

Clothing and footwear along with some personal care items and services like laundry and tailoring have contributed to rising core inflation, the Nomura report said. Other household items like soaps, bedding-related items and electrical appliances also became dearer.

While food prices have moderated and global edible oil prices have come down, there are upside risks like electricity tariffs being revised up and retail prices remaining sticky.

‘Some ameliorating factors have materialised on inflation, including lower food and commodity prices in July, but retail

prices are typically sticky, electricity tariffs are being revised up, services sector re-opening pressures persist, and secondround effects are yet to play out,’ the Nomura report flagged.

A recession in advanced economies could have a salubrious effect on inflation as commodities cool down but second round impact on retail prices poses a challenge.