The Consumer Price Index (CPI), a key measure of retail inflation, stood at a revised 4.31 per cent in May 2023, compared to 7 per cent in the same month the previous year.
Despite this rise, the inflation rate remains within the Reserve Bank of India’s (RBI) tolerance level of 2-6 per cent.
However, experts warn that retail inflation could potentially escalate in the coming months due to a substantial hike in the prices of various food items, including cereals, vegetables, fruits, milk, and meat.
Unpredictable weather patterns, characterised by erratic and heavy rainfall, are expected to negatively affect crop production, leading to an increase in food prices. This, in turn, could drive up inflation over the next few months.
Inflation to rise further
Aditi Nayar, an economist at ICRA, was quoted by news agency Reuters as saying, “A less supportive base and the onset of the spike in vegetable prices pushed up the CPI inflation to a higher than anticipated 4.8 per cent.”
She further added that the high prices of vegetables are likely to persist in July, potentially pushing retail inflation to an “uncomfortable 5.3-5.5 per cent” during the month.
Economists predict that the impact of higher food prices could be felt until August, after which it may start to cool off.
Impact on economy
The effects of high retail inflation on the economy can be far-reaching. High inflation rates can lead to a decrease in consumers’ purchasing power, resulting in reduced consumer spending and lower business sales.
This can create excess inventory and dead stock, leading to lost revenue for businesses.
Furthermore, high inflation can distort purchasing power over time for recipients and payers of fixed interest rates, reducing the real income of some consumers.