The Reserve Bank of India (RBI) has warned that the rising food, fuel and other input costs could trigger broader inflation across the Indian economy.
Source: AI Generated
India's consumer inflation rose to 4.5% in July from 4.4% in June, mainly due to supply-side pressures. While the core inflation remains relatively stable, the RBI is concerned that continued rising in essential costs could spread to other goods and services.
Food prices have already increased on broad base, despite some improvement in rainy conditions. More expensive fuel prices could add further pressure by increasing transportation and production costs for businesses.
The main concern is important because food and fuel prices can create second-round effects where higher costs eventually move into wider price increase and influence inflation expectations.
For now, the RBI has talked about how generalized inflationary pressures remain modest. However, policymakers have signaled to a certain extent that a persistent rise in inflation could require tighter monetary policy.
The message, however, is clear: Inflation may be under control but that is just for now, rising food and fuel costs could change the picture quickly.