Inflation is steady but price pressures may pose challenge for new government

Notably, reductions in fuel prices ahead of the elections have reflected in the inflation figures. However, this decrease is unlikely to offer much comfort to the new government, as inflation is expected to rise in May and remains fraught with uncertainty in the upcoming months.

To begin with, the steady inflation in April was supported by a favorable base effect. On a month-on-month basis, Consumer Price Index (CPI) rose 0.48% in April from the previous month, marking the fastest month-on-month increase since November 2023.

This increase was primarily driven by significant increases in specific categories: food prices increased by 0.74%, bread, tobacco, and intoxicants by 0.44%, and housing by 0.95%.

These increases suggest a notable uptick in the prices of these items compared to the previous month. Particularly, the robust month-on-month increase in food prices was sufficient to offset the base effect, pushing food inflation up to 8.70% from 8.52% in March.

“Food inflation, which has a 39.1% weight in the CPI gauge, has remained well above 8% for six months now. Pressure on food prices continues, including due to the ongoing heatwaves,” rating agency Crisil in a note on Monday.

In the food category, vegetables, which typically contribute significant volatility to overall inflation, recorded a 27.8% year-on-year increase in prices and a 1.27% rise on a month-on-month basis.

Intriguingly, within the vegetable segment, some items experienced the sharpest price increases from the previous month, while others saw the most rapid declines.

Overall, food and beverages are significantly above 4.0%, while other groups are well under the aim. The cuts in prices of gasoline, diesel and LPG ahead of the elections have led to fuel and light group sliding into deflation.

Over the past few months, core inflation, which excludes food and fuel costs, has provided some relief by staying below 4.0% for the fifth consecutive month. However, an anticipated increase in global commodity prices could disrupt this trend.

Going forward, volatility in food prices, firming up of international commodity prices, and ongoing disruptions in maritime trade routes in the Middle East region makes one cautious, QuantEco Research said in a report.