You don’t really need to look at the headlines to know that retail inflation, the price you and I pay for goods and services, is steeply climbing up. The price of lemon underlines this predicament in bold.

The latest inflation print is just a testimony to the pain that rising prices are causing to consumers. The RBI acknowledged it in its latest policy review. Governor Shaktikanta Das minced no words when he ranked inflation above growth on the list of priorities for Mint Street.

Experts welcomed that shift in focus from growth to inflation but also underscored the delay that could be costly. ET Now’s Mythili Bhusnurmath noted the impact of higher food prices as the key driver of inflation in March as the pass-through of higher oil prices started towards the end of the month.

The worry doesn’t end with high food inflation. Core inflation, which excludes food and fuel prices, also rose to 6.4% in March. That should indeed raise some red flags.

Remember rising prices are the biggest dampener for consumer sentiment. India’s recovery from the body blow of the pandemic is still nascent. Private consumption, the biggest driver of economic growth, is still waddling its way to a full recovery.

Rising prices of essentials will only put a spoke in the recovery wheel as households redraw their budgets. The hospitality sector. crawling out of a pandemic-imposed slowdown, could be a casualty as consumers spend less on recreation and reallocate more on essentials.

The steep rise in edible oil prices following the Russia-Ukraine war is pinching consumers who are cutting back on consumption or moving to cheaper alternatives. Around 29% of Indians surveyed by LocalCircles have downgraded to a cheaper alternative of cooking oil that could pose a health risk.

Edible oil prices have shot up between 50-70% over pre-Covid levels. Russia and Ukraine are major exporters of sunflower oil. The survey also stated that consumers are dipping into their savings to pay for the higher price of essentials.

Will it get worse before it gets any better?

The RBI acknowledged that the price trajectory will depend on the evolving geopolitical situation. With no end in sight for the Russia-Ukraine war, the global commodity prices could remain volatile.

India’s wholesale inflation has remained in double digits for 11 months on a trot. The prices are expected to remain elevated following the disruption in global supply chains and hardening of commodity prices. High WPI inflation will start feeding into retail prices.

In its outlook, the RBI noted that input cost push pressure could persist for longer. As demand grows and returns to pre-pandemic level, the pass-through to retail prices could increase.

The Oil Marketing Companies (OMCs) started raising fuel prices in March and subsequent months will bear the brunt along with the cascading effects on sectors like transportation.

Another major pain point is rural inflation. Rural recovery is key to India’s overall recovery. Higher rural inflation will chip away at the disposable income and put brakes on a swift bounce back.

Not a shock therapy

The RBI’s change of heart on inflation is best captured through phraseology. From maintaining an accommodative stance as long as necessary to focusing on withdrawal of accommodation, the RBI has taken the first step towards normalising monetary policy. The introduction of the Standing Deposit Facility or SDF as a tool in the LAF corridor is a signal to suck out an abundance of liquidity sloshing around in the market.

Professor Jayanth Varma, an MPC member, has long advocated a shift away from RBI’s accommodative stance.

“The time has come to think of the objectives of monetary policy in much broader terms than ‘mitigate the impact of COVID-19 on the economy,’” he had pointed out in the February meeting.

A shift in stance would have helped the RBI to anchor inflationary expectations. In the latest policy review, the RBI has only hinted at withdrawal of accommodation and not actually changed the stance while revising inflation projections for FY23 sharply upwards to 5.7 per cent from 4.5 per cent earlier.

Central banks in the West have woken up to the reality that inflation is real and not transient. The US Federal Reserve has embarked on a rate hike journey to fight the worst inflation in decades.

Many feel that a rate hike is now imminent in June. But the real question will remain – Is it too late?