Rating agency Crisil in its research report has said that higher input prices and disruptions to the rural economy have resulted in price pressures and inflation is back to haunt us. It sees upside risks to its 5 percent estimate on consumer price inflation in FY21 because of this. It can be noted that the RBI is required to maintain the crucial number at 4 percent in the medium term, with a 2 percentage point leeway on either side as part of its inflation target. It said a surge in inflation worries had led it to desist from introducing rate cuts during much of FY21, despite the over 7.6 percent contraction in the economy.
Crisil said data collection was disrupted in April and May 2020 because of the national lockdown, and last year's base will not reflect accurate trends. Therefore, it has focused on sequential price trends on a seasonally adjusted basis. When viewed thus, both WPI (wholesale price index) and CPI indices continued to increase on-month in April 2021. It also stated that input costs are rising because of a surge in global commodities, which are raising manufacturing costs and hence fanning domestic inflation, the report added.
The report further said WPI inflation has surged in double digits in April on-year for items directly linked to these commodities and added that crude-linked inflation has risen the sharpest, partly led by the base effect too. Producers are currently bearing a higher burden of rising input costs than consumers. However, it said as demand revives, these costs can get increasingly passed on to consumers.