MUMBAI: India’s interest rate-setting committee has stated that the Ukraine war, generalised hardening of commodity prices and the likelihood of prolonged supply chain disruptions, among others, have imparted sizeable upside risks to the inflation trajectory and downside risks to domestic growth, minutes of the MPC meeting held between April 6 and 8 released on Friday show.
International crude oil prices remain volatile and elevated, with considerable uncertainties surrounding global supplies,” the Monetary Policy Committee noted. “With the broad-based surge in prices of key industrial inputs and global supply chain disruptions, input cost-push pressures appear likely to persist for longer than expected earlier. Their pass-through to retail prices, though limited till now given the continuing slack in the economy, needs to be monitored carefully.”
Thanks to supply disruptions caused by the Pandemic and more recently the war in Europe, retail price or CPI inflation overshot the MPC’s upper tolerance limit three straight times, growing at 6.01% in January, 6.07% in February, and at 6.95% in March, as food and fuel prices tore through the roof. The MPC’s medium-term inflation target is at 4% within a plus or minus 2% band to support growth.
“With inflation projected to breach the upper tolerance limit for several months, it is imperative for the MPC to communicate its resolve to ensure that inflation remains within the target going forward,” a member’s statement read. “It is also necessary to prepare the markets for the withdrawal of the post-pandemic monetary accommodation.”
Expressing worry over rising food prices, the MPC noted that elevated global price pressures in key food items such as edible oils, and in animal and poultry feed due to global supply shortages imparted high uncertainty to the food price outlook, warranting continuous monitoring.
‘Cut taxes on fuel as inflation soars’
New Delhi: MPC member Ashima Goyal noted that some relief could be provided to consumers by cutting taxes on fuels amid surging inflation. In April 2019 domestic petrol prices exceeded international prices by 40 per litre. The gap widened in the Covid-19 years as international prices fell but domestic taxes were not reduced.
These were essential revenue-source then as other sources had collapsed. In February 2022 the gap was back to 40/litre as international prices had gone up.