In March 2022, retail inflation soared to 6.95%.
The Consumer Price Index is way above the RBI’s inflation target of 4% (+-2%).
However, Mint analyses the inflation impact on the salaried class, economy, and investors.
Inflation numbers in 2022
Compared to a 6.07% inflation in February 2022, it soared to 6.95% in March 2022.
The inflation recorded in March was the highest in 17 months.
In February 2022, food and beverage inflation, constituting 45.86% of the CPI, was at 5.93%
However, in March 2022, the food and beverage inflation soared to 7.47%.
Nevertheless, as fuel prices soared at the end of March, its impact on inflation is yet to come.
The core inflation was 6.53% in March 2022, while wholesale inflation was 13.11% in February, compared to 12.96% in January 2022.
Inflation impact the salaried class and the economy
The rising prices of food and vegetables would severely impact the salaried class.
Furthermore, various firms are likely to witness the inflation impact as the expenditure under-compensation for employees increases.
As a result, the high inflation would severely impact the salaried and the economy.
Compensation for the salaried class
Individuals with incomes through an informal sector would suffer the impact of inflation.
However, the government and the organized sector have a well-structured system to protect the interests of employees.
This can be done by compensating erosion in purchasing power through a formula — they aim to increase the DA compared to the rise in CPI-based inflation.
Does the inflation impact benefit investors?
A 4-5% inflation rate proves beneficial for the economy.
The manageable inflation rate is beneficial as income redistribution works in favor of investors.
Furthermore, while the salaried class is compensated via variable DA, it is not practical to work with up-to-date data.
Additionally, DA for April relies on the latest CPI — which reflects the price level of the previous month.
However, the constant rise in product prices is beneficial for continuous expansions in profit margins.
This further encourages investors leading to an increase in investment levels.
RBI’s take on the inflation impact
In the latest meeting, the RBI raised its annual inflation forecast for FY23 from 4.5% to 5.7%.
Furthermore, they cut the domestic product growth rate for FY23 to 7.2%.
The RBI said they would prioritize inflation before growth, and their stance would be less accommodative.
Furthermore, a calibrated withdrawal of liquidity would be introduced in a non-disruptive manner.
Given the current inflation impact across various sectors, the government must place effective fiscal policy measures.