With retail inflation touching 5.54% in September, India’s inflation tolerance – as defined by the Reserve Bank of India (RBI) – is close to its 6% threshold. It is at a two-year high and has been above 4% for four consecutive months. Food inflation was 7.74%, and rural food inflation touched 8.06% in September. The wholesale price index registered a high of 11.39%. According to data released by the Consumer Affairs Ministry, onion prices have risen nearly 113% over the last 12 months, sugar prices by 22%, and sunflower oil prices by 18%. Retail prices of most essential, government-monitored household items have gone up, with 41 of 42 items recording rises over a year. Inflation has steadily increased since January, and consumer prices increased by 0.69% between August and September.

The rise in inflationary pressures is traced to the increase in crude prices due to the war in West Asia, a depreciating rupee, and a deficient monsoon that has affected agriculture and created drought-like conditions in many parts of the country. While the rise in oil prices has raised transport costs, contributing to a general price escalation across commodities and services, a weak rupee has imported inflation. Weather disruptions could continue as the El Niño is expected to extend to the next year. Winter crops are also likely to be affected. The RBI has predicted higher inflation levels for the remaining months. The International Monetary Fund (IMF) has warned of renewed inflationary pressures in India if the West Asia war keeps energy prices high. It also warned that higher energy prices could worsen fiscal balances in the region, making it more difficult for governments to support vulnerable households while maintaining fiscal sustainability.

The central bank has increased interest rates and may raise them again. While it is the standard monetary response to tackle inflation, it may still prove insufficient. Since food inflation can severely hit weaker sections, especially those in rural areas, the Union government should take steps to contain distress. Buffer stocks should be released in time to reduce shortages and prevent price rises. Administrative action should be initiated to prevent artificial scarcity. Imports should be considered when necessary. Farmers will need assistance for their crops in adverse circumstances, along with compensation and insurance payments for their losses. The poor, in both towns and villages, will be the worst-affected, and the government should prioritise policies to help them overcome the challenge. (Source: DH)