Even as the speculation over the successive repo rate hikes by the Reserve Bank of India (RBI) as an attempt to tame inflation refuses to die down, the State Bank of India has now waded into the fray with its latest analysis of the situation.
In its monthly Ecowrap report, the country’s largest bank has said that the RBI has successfully taken pre-emptive measures to tackle inflation, and perhaps the US Federal Reserve can learn a bit or two from this.
“We believe the RBI is much ahead of the curve in controlling inflation, and the Fed can borrow a template from RBI to control US inflation that is all pervasive, and threatens to rip apart global financial stability,” the SBI said in its Ecowrap.
“In fact, pass through of energy inflation has been sharply higher in the US also, and in fact, is higher than India. The interesting part is that energy and transport have higher share in weighted contribution in overall inflation in the US when compared to India. In India, share of energy in weighted contribution of CPI inflation is 9.2 per cent, while in the US, it is 29.2 per cent. For transport, it is 36.6 per cent in the US compared to 10.3 per cent in India. We must appreciate the invisible government hand of controlling inflation in India of limiting the pass through by employing an activist fiscal policy,” the SBI report said.
The report further said that the cost price index (CPI) data released came right alongside projections, belying many expectations built on the far upper side.
After rising to a 95-month high to 7.79 per cent in April 22, CPI inflation moderated to 7.04 per cent in May due to broad-based deceleration. Core CPI also moderated in May to 6.09 per cent as compared to 6.97 per cent in April 22, the report said.
According to the SBI, the deceleration in rural CPI has been the major reason for the slowing of inflation in May.
“Rural CPI decelerated to 7.01 per cent in May from 8.38 per cent in April 22, mainly on account of health, education and personal care and effects, whose combined weighted contribution declined by 35 basis points (bps), and food and beverages, whose weighted contribution declined by 40 bps. Urban inflation, on the other hand, remained sticky at 7.08 per cent. One divergent trend is visible in case of food and beverages, whose weighted contribution has declined in rural areas, but increased in urban areas,” the report said.
The report further mentioned that slowdown in the US and the European Union will adversely impact Indian exports due to fall in demand abroad.