(CTN News) – Pakistan and India can’t stop food prices – our problems are– a trend that fuels inflation, worsening the cost-of-living crisis.
In December, Indian retail inflation rose at its fastest pace in four months, due primarily to higher food prices, raising expectations that the central bank won’t cut interest rates anytime soon.
The Indian government reported Friday that retail increased to 5.69 percent in December from 5.55 percent the previous month, exceeding the central bank’s 4 percent target.
In a Reuters poll of 56 economists, 5.87 percent was predicted. Pakistan and India, however, have very different policies.
To control the price of food in the domestic market, New Delhi has regularly imposed curbs on food exports. The rising food exports in Pakistan, however, have created a demand and supply imbalance, pushing food prices higher.
Food, which accounts for nearly half of the overall consumer price basket, was 9.53 percent in December, up from 8.70 percent in November. ICRA economist Aditi Nayar says there will be no rate cuts before August 2024 for certain items like rice, wheat, and pulses.
The RBI’s monetary policy committee left the benchmark repo rate unchanged at 6.50pc for a fifth consecutive meeting last month. In a report published last month, the RBI said monetary policy could remain restrictive as inflation remains above target.
Two economists estimate core inflation in December at 3.8pc-3.89pc, compared to 4.05pc-4.2pc in November.
India does not release core inflation figures.
According to India Ratings & Research’s chief economist, Devendra Pant, core inflation has fallen to a four-year low.
In times of strong economic growth, low core inflation can reflect weak demand in the economy, Pant said. In the financial year ending March 31, 2024, the government estimates the Indian economy to grow by 7.3 percent.
With a general election due in May, Narendra Modi, who remains popular with voters, has taken several steps to contain food prices. Retail inflation may remain above the central bank’s target this year, delaying a rate cut.
Garima Kapoor, an economist at Elara Capital, believes the RBI’s Monetary Policy Committee will cut rates for the first time in fiscal 2025.