Coronavirus Outbreak: Economists expect retail inflation to spike in April due to nationwide lockdown

Mumbai: Economists on Monday termed the ease in March CPI inflation to a four-month low of 5.1 percent as a misplaced sense of improvement because the impact of lockdown on food prices will be felt in April. Retail inflation as measured by consumer price index (CPI) slowed to a four-month low of 5.91 percent in March as against 6.58 percent in February 2020 and 2.86 percent in March 2019. “The number does give a sense of improvement in inflation, which is misplaced given that the real impact of the lockdown will be felt sharply in April as prices of food items have increased quite sharply,” CARE Ratings chief economist Madan Sabnavis.

With the lockdown across the country and limited movement of goods due to absence of labour, trucks and activity in wholesale markets, there have been sharp declines in supplies of foodgrains, horticulture, sugar which have been reflected in higher prices in the market. “This can push food inflation towards the 10 percent mark. We can expect CPI inflation in April to be above 6 percent,” Sabnavis said. Click here to follow LIVE updates on coronavirus outbreak

However, core inflation will trend downwards as service prices would not be changing and those products with would not witness a change even with supplies declining. Kotak Mahindra Bank’s senior economist Upasna Bhardwaj said going ahead CPI trajectory will remain above 5 percent for the next few months before beginning to moderate at sub-four percent around August. “We expect the MPC to look through the near term inflation readings and focus on the medium-term trajectory while addressing the economic and financial stability,” she said. Bhardwaj said the RBI is expected to adopt several unconventional measures to tackle the current crisis beyond repo rate cuts. “We see additional rate cuts of 50-75 basis points in the year ahead given our GDP expectations of 0.4 percent in FY21,” Bhardwaj said. DBS Bank India economist Radhika Rao said March inflation was in line with the forecast. “Undercurrents reflect a smaller pace of decline in food (MoM), but offset by low energy prices and subdued demand activity,” she said. On food, despite signs of a bumper harvest, market arrivals have dropped, particularly perishables (vegetables around 50-70 percent) and foodgrains, she said. Besides widening closure of wholesale markets, these supply shortages reflect logistical delays due to delays in intra-state movements due to lockdown situation and labour shortage, which are likely to cause short-term distortions in late-Q1 and Q2, along with a situation where consumption was dominated by essentials while rest of discretionary demand was scaled back, Rao said. “Beyond these incipient pressures, inflation is expected to trend down for the rest of FY21 and average around 4 percent in FY21,” Rao said.