India: A case study in COVID-induced inflation

June 30, 2021

NEW DELHI --India's inflation in May surged past the 6% ceiling of the official target range. The price increase was broad-based, with both headline and core components touching recent highs, ANZ Bank said in a research note. Various State-level lockdowns and rising health costs likely added to the inflationary impulse in the month, ANZ said. "We expect the Reserve Bank of India (RBI) to not react to this data point, but to monitor if it is sustained."

ANZ believes this is unlikely as normal monsoons and gradual unlocking should help prices stabilise.

On an annual basis, India's headline CPI jumped to a six-month high in May, whereas core inflation rose at the fastest pace since June 2014. "Not only was there an increase across all major categories, but also across both the urban and rural sectors," the research note said. "The sequential outcome mirrored this pattern."

Headline inflation rose by 1.65% m/m, the sharpest pace since April 2020 when the national COVID lockdown was enforced

"It is clear that localised lockdowns across a number of Indian States added to supply side pressures and hence higher prices," ANZ says.

Sharply higher domestic fuel prices had also added to input price inflation. And coinciding with the peak of the recent wave of the pandemic, healthcare costs rose by 8.44% y/y.  (ATI).