Surprisingly, the contribution of petrol and diesel in overall inflation has been declining steadily since October 2021, while there is a steady increase in the weighted contribution of kerosene and firewood in headline inflation, SBI Research said in a report.
There is also a decline in weighted contribution of LPG in headline inflation.
It seems that fuel consumption has been declining even before the Omicron had set in and the trend to alternate sources of fuel like kerosene and even firewood may have gathered momentum and will possibly gather further traction in coming days. This does not augur well for rural demand, says Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.
The Russia-Ukraine conflict has significantly impacted the trajectory of inflation. The latest March'22 inflation print shows wheat, protein items (chicken in particular), milk, refined oil, potato, chillies, kerosene, firewood, Gold and LPG contributing to overall inflation in a substantive manner.
The conflict has pushed up prices of chicken abruptly as chicken feed imports from Ukraine are getting disrupted. The pressure on sunflower oil supplies from Ukraine has led to change in export policy from Indonesia, thereby leading to lower palm oil imports. Further the war has exacerbated crop loss concerns in South America which in turn has impacted soybean oil supplies. Milk, Refined Oil prices have also jumped significantly.
CPI inflation surged to 6.95 per cent on yearly basis in March'22 as compared to 6.07 per cent in February'22 mainly on account of food price inflation. Inflation prints are now likely to stay higher than 7 per cent till September. Beyond September, inflation prints could hover in between 6.5 per cent-7 per cent. Our FY23 inflation forecast is now closer to 6.5 per cent, taking into account the possibility of an extended food price shock, the report said.