India wrestling with high and rising inflation, enlisted as ‘Hot’ economies: Report

The report says claims that only four nations in Asia, including India, Singapore, South Korea, and Taiwan, are enlisted in the basket of ‘hot’ economies wherein the inflation rate lies on the higher end of the spectrum. 

The report says, “for the four economies in our ‘HOT’ inflation bucket, real policy rates remain significantly negative, which calls for more policy tightening, with the risk that policy will need to be front-loaded and need to move beyond neutral.”

Whereas, countries featuring in the ‘warm’ bucket, i.e, those economies where underlying inflation is around the target but on an uptrend, include Indonesia, Malaysia, the Philippines, and Thailand.

On the other hand, Hong Kong is the only Asian country that features in the ‘cold’ bucket. The country faces low, stable underlying inflation that accounts for only a part of the overall inflation.

In India, headline retail inflation has been on an uptrend for a few months now. To limit this alarming hike, the RBI has announced a rate hike of 40 bps, with analysts expecting more hikes in the coming months. Currently, India’s underlying inflation stands at 6.1% and has already breached the upper bound of the RBI’s 2-6% target range.

Nomura says that India’s share of underlying inflation in headline inflation is one of the highest in Asia, as it stands at 88%.

As per a Reuters poll, “India’s retail inflation likely surged to an 18-month high in April, largely driven by rising fuel and food prices. The headline CPI reading is likely to have surged to 7.5% in April, according to a May 5-9 Reuters poll of 45 economists, from 6.95% in March”