Inflation relief is mixed as prices remain high
A series of measures taken by the government over the past month to cool prices have so far proved mixed. While fuel prices have fallen significantly, food prices looked more bullish, still above where they were a month ago, according to analysis by the Mint.
The two most crucial announcements were the wheat export ban, which drew worldwide criticism amid global shortages, and excise duty cuts on petrol and diesel by ₹8 per liter and ₹6 liters.
Not only have the excise duty cuts been passed on to consumers, but prices have also been suspended, even as crude oil prices are on the rise again. As a result, gasoline and diesel prices are 7-8% lower than a month ago. The wheat export ban, however, did not have the desired effect.
While wheat prices have fallen in recent days, they are still about 3% higher than a month ago, according to Consumer Department data.
According to Barclays, a 10% rise in domestic foodgrain prices would typically add about 27 basis points to retail inflation.
Similarly, prices for sugar, soybeans and sunflower oil fell as export restrictions and tariff reductions came into effect. However, their prices remain higher than a month ago.
“The impact of these measures on food prices will be felt with a lag,” said Yuvika Singhal, economist at QuantEco. “While any likely price correction will be partial this month, these measures will be helpful in at least keeping the price suspended.”
A drop in fuel prices may offer relief, but oil marketing companies may soon be forced to raise them as the long 137-day freeze ahead of national elections held in March and again for two months since April has deepened the difference between the cost and the selling price. .
As of June 2, oil marketing companies were losing ₹17.1 per liter of gasoline and ₹20.4 on diesel, PTI news agency reported.
Two other important announcements, the subsidies on fertilizers and cooking gas, are targeted measures aimed only at beneficiaries.
The impact of these measures on inflation is difficult to estimate, economists say, although the fertilizer subsidy could ease input price pressures on agricultural products, the benefits of which could take a few months to manifest.
The impact of excise duty cuts on gasoline and diesel could reach 50 basis points, while retail price inflation jumped 172 basis points between February and April.
Retail price inflation is expected to peak under the Narendra Modi government at 6.7% this fiscal year, Mint reported earlier.