India’s consumer price inflation (CPI) is showing no signs of receding any time soon.

A Reuters poll showed that though CPI inflation moderated in May, it would still be above the Reserve Bank of India’s (RBI) upper tolerance limit of 6 per cent for a fifth straight month.

The June 6-9 Reuters poll of 45 economists showed retail inflation likely fell to 7.10 per cent in May from 7.79 per cent in April.

However, it continues to be above the 6 per cent mark, a trend that has persisted since the beginning of this calendar year.

On Wednesday, the RBI hiked the policy repo rate for the second time in over a month to combat prices.

While the repo rate was increased 50 basis points to 4.90 per cent, the monetary policy committee (MPC) revised upwards the CPI inflation projection for this year to 6.7 per cent.

The RBI is widely expected to go for back-to-back interest rate hikes at least till December 2022 and wait for more data to take its next call. Some estimates even say that if inflation remains high, the repo rate will even surpass 6 per cent in 2023.

ANZ economist Dhiraj Nim reportedly said that the Centre’s fuel tax cuts lowered prices around 10 per cent compared with earlier this year. However, food inflation remains elevated .

According to Rajni Thakur, chief economist, RBL Bank, the rate hikes by the RBI will help anchor inflation expectations and impact the actual inflation outcome to a much lesser extent.

However, it makes it difficult to gauge a terminal rate level for the current cycle.

The economists have factored a hike in the repo rate to at least 5.15 per cent — the pre-Covid level — on the basis of the fact that the monetary policy stance has changed from “accommodative with focus on withdrawal of liquidity” to “focus on withdrawal of accommodation”.

US worries

US inflation has hit a new 40-year high of 8.6 per cent in May, reports AP.

The costs of gas, food and other necessities jumped raising inflation to a new four-decade high and giving American households no respite from rising costs.

Consumer prices surged 8.6 per cent last month, faster than April’s year-over-year surge of 8.3 per cent.

Prices jumped 1 per cent from April to May, a steep rise from the 0.3 per cent increase from March to April.

Much higher gas prices were to blame for most of that increase.