Although the monthly economic report was silent on rising pump prices of petrol and diesel, it recognised how food inflation was growing at a fast clip in urban areas. A spike in inflation has prompted RBI to hold further rate cuts as wholesale price inflation soared to 12.9%, the highest since at least 2012, while retail inflation was pegged at 6.3%, a six-month high.
“The localised restrictions due to the second wave could have led to some supply-side disruptions contributing to price pressures in May 2021. With the encouraging progress of the southwest monsoon, supply-side interventions in the pulses and edible oils market, and gradual unlocking of states, with declining caseload would mitigate cost pressures going forward,” the report prepared by the finance ministry’s economic division said.
It presented a rosy picture on economic recovery, while calling for rapid vaccination and bridging gaps in health infrastructure. The ministry expects the recent announcements to boost consumption sentiment as well as capex cycles.
Pointing to the recent economic relief measures, the report said, “the package is expected to further oil the wheels of the capex cycle”.