Inflation, which is currently hovering at an eight-year high of around 7.79 per cent, may cool down going forward due to the lowering of petrol and diesel prices following an excise duty cut by the Centre. According to a report quoting economists, retail inflation is likely to be lower by 20-40 basis points.
The central government last week cut excise duty on petrol by Rs 8 per litre and that on diesel by Rs 6 per litre. It will translate into a reduction of Rs 9.5 per litre in petrol prices and Rs 7 per litre in diesel. Following the duty cut, the price of petrol in Delhi on Tuesday stood at Rs 96.72 a litre as against Rs 105.41 a litre earlier, while diesel will cost Rs 89.62 a litre as opposed to Rs 96.67 earlier.
All states across the country have witnessed the price fall. However, Maharashtra, Rajasthan and Kerala have also cut value-added taxes, thus bringing down the fuel prices even further.
“Inflation can come down by around 0.4 per cent. Prices are still high and instead of inflation of close to 30 per cent for petrol, it will be around 20 per cent,” according to the ET report quoting Bank of Baroda Chief Economist Madan Sabnavis.
The report also quoted Sakshi Gupta, principal economist at HDFC Bank, as saying, “As a direct impact, the excise duty cut is likely to reduce inflation by 20 bps.”
The Consumer Price Index (CPI)-based inflation, which the RBI takes as a reference point while deciding on the monetary policy, in April soared to an eight-year high of 7.79 per cent, against 4.23 per cent in April 2021 and 6.97 per cent in March 2022. Inflation in the food basket rose to 8.38 per cent in April, from 7.68 per cent in the preceding month and 1.96 per cent in the year-ago month.
Inflation in cereals and products in April jumped to a 21-month-high level; vegetables at a 17-month high; and spices at a 17-month high. Consumer food price inflation rose to 8.38 per cent, which is a 17-month high.
Wholesale inflation in April also jumped to a record high of 15.08 per cent on rising prices across segments from food to commodities, against 14.55 per cent in March and 10.74 per cent in April last year.
On Monday, in an interview with CNBC-TV18, RBI Governor Shaktikanta Das said the expectation of a rate hike in June is a no-brainer. He, however, also said the central bank and the government have taken a number of steps in the past few months to control price rise in the country and the actions will have a sobering impact on inflation going forward.
“We have entered into another phase of coordinated action between the fiscal and monetary authorities to check inflation. The RBI has taken a number of steps over the past two or three months… The government has taken action on wheat, various kinds of intermediaries, raw materials and of course the big one on petrol and diesel… Now, all these put together will have a sobering impact on inflation going forward,” he has said.
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