HSBC economists signal stretch in inflation due to rural recovery

Mumbai, Feb 17 (KNN) Owing to the revival of rural demand, India’s economy is likely to witness another bout of inflation, said economists at HSBC Securities and Capital Markets (India).

It will also be driven by the informal sector as it recovers from the pandemic-lows, the experts reported.

For most of the January consumer price inflation remained above the central bank's upper tolerance band of 6 per cent before falling below it in the last two months of the year, only to resurge to 6.5 per cent in January.

Goods inflation in India is outpacing services in contrast to the global experience, while core prices remain elevated said Pranjul Bhandari and Aayushi Chaudhury, the economists.

Both the economists opined that it has much to do with the recovery in rural and informal sector demand.

While rural demand was weak in the early part of last year, wage growth, adjusted for inflation, has now surpassed pre-pandemic levels, HSBC's research showed.

Further, strong sowing patterns in the winter season will also help incomes. The informal sector, closely linked to the rural economy, is seeing a revival in step.

“Already, there is pressure on food inflation, particularly across cereal and milk,” the economists said pointing out towards the implications of rising rural incomes for inflation.

“As we await the winter crop, due in March/April, food prices will likely remain elevated,” they added.

Producers will use the strong demand conditions to restore margins, raising the risk of inflation staying higher, the economists said.  (KNN Bureau)