Rising prices emerge as the next big obstacle to economic rebound
India’s slow but sure economic rebound faces rising inflation, driven by high commodity prices, as the next big obstacle to a faster global recovery.
Over the past three to six months, accelerating economic recovery along with global stimulus measures along with ultra-low interest rates and the start of the vaccination campaign have fueled the surge in commodity prices. .
As a result, the prices of steel, cement, pharmaceuticals and even cotton yarn have skyrocketed.
Even food and fuel prices remain at high levels, prompting producers and traders to pass any increased costs on to end users.
According to economic watchers, this inflationary trend, without commensurate wage increases, will hamper growth prospects during FY21-22.
In addition, the rise in prices will limit the ability of the RBI to lower policy rates and maintain liquidity levels to support demand in the economy.
Currently, various forecasts have fixed GDP growth for fiscal year 21-22 in the range of 7-11%.
However, the RBI is expected to maintain an accommodative stance and hold the repo rate at 4% for the next 6-9 months to support the resumption of growth.
The lowest lending rates of the decade depreciated the financing of auto and home loans.
“Rising inflation due to accelerating commodity prices is going to be a major concern for the country’s growth prospects in fiscal years 21-22,” Sunil Sinha, senior economist at IANS, told IANS. ‘India Ratings and Research.
“Unlike the recent past, producers have now started to pass on increased input costs to product prices, as the absorption of rising input costs affects their EBITDA margin and profitability.”
In fact, the high prices of oil as well as those of steel and cement could also have a negative impact on the creation of infrastructure.
The Center hopes to revive the growth of the economy through the creation of infrastructure.
“The rise in prices is certainly not auspicious, especially when it is due to cost increasing factors linked to the rise in oil prices,” said the chief economic adviser of Brickwork Ratings, Mr. Govinda Rao.
“The increase in fuel prices and taxes is reflected in higher transport costs which have a negative impact on competitiveness and exports.”
In addition, the clamor for a reduction in GST rates on steel and cement from 28% to a lower level has started.
Likewise, the reduction in public and central levies on petroleum products has been requested.
“There is an upside risk to fuel and core inflation, as global commodity prices have risen sharply and producers could pass on higher commodity prices amid a V-shaped recovery. planned and immunization progress as a backdrop, ”said Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research,
“The price pressures are also due to an increase in the global prices of raw materials, in particular oil and its impact on retail fuel prices.”
Notably, auto parts makers have raised prices to offset rising costs for components and steel. This increased the overall cost of ownership and could hurt future sales.
“Rising input costs, rising commodity prices and seasonal increases in food prices and better pricing power remain the main risks for inflation. Madhavi Arora, Chief Economist, Emkay Global.
“While this may be of concern to policymakers, the policy stance is likely to remain accommodative on both rates and the liquidity front in Year 21.”
Additionally, the country’s CPI-based inflation rose to 5% year-on-year in February from 4.1% in January.
Likewise, food and beverage price growth rose 4.3% from 2.7% in January.
Core CPI excluding food, fuel and lighting rose 5.6% in February, from 5.3% in January.
“If commodity prices continue to rise to a level that could stifle demand, then this could pose a downside risk to growth,” said Aditi Nayar, Senior Economist, ICRA.
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