The Reserve Bank of India (RBI) Governor Sanjay Malhotra while announcing the Monetary Policy Committee (MPC) meeting decision warned that the rise in petrol and diesel prices in May will soon lead to uptick in the household expenses, and the impact will be visible on the CPI Inflation soon.
“Retail fuel prices have been raised cumulatively by 7.4 per cent for petrol and 8.4 per cent for diesel. The increase implies a direct impact of about 36 basis points on headline inflation, which, along with second order effects, would get reflected in CPI inflation in the coming months,” Governor Malhotra said.
Talking further on the inflation, he said the core inflation (CPI excluding food and fuel) remained unchanged at 3.7 per cent during January to April. “Excluding precious metals, core inflation remained much lower at 2.1-2.2 per cent. This indicates that the input cost pressures, as reflected in a sharp increase in April WPI, have not yet fully manifested in CPI.”
He further said that looking ahead, elevated energy and other commodity prices coupled with continued supply disruptions are likely to affect economic activity.
“While import diversification in affected commodities has helped in improving supply, it comes at a higher cost. The full impact, however, will depend on the duration of the conflict, time taken for normalisation of supply chains and the burden-sharing approach among the stakeholders,” he added.
Since the onset of Iran War, the fuel prices have increased by nearly Rs 7.5 per litre, and with the latest hike, the petrol prices have crossed the Rs 100-mark in all four metro cities.
Centre has hiked the fuel prices to contain the losses against the rising crude prices. Prices were increased for the first time on May 15 by Rs 3 per litre.
Also Read: Fuel Price Hike: How It Will Hit Your Kitchen, Commute and Monthly Budget
RBI Governor also highlighted that the elevated energy prices coupled with global supply constraints are having adverse spillovers on economic activity.
While domestic demand remains resilient and manufacturing and services sectors activity continue to expand, there are incipient signs of moderation in some sectors as suggested by high frequency indicators, he said.