The easing down of inflation is a favourable sign for the Indian economy

Albeit the domestic economy is facing spillovers from global conditions, it remains on the recovery path, as reflected in the latest Wholesale Price Index (WPI) and Consumer Price Index (CPI) numbers.

WPI inflation eased to 15.18 per cent in June, from a record high of 15.88 per cent last month, riding on lower prices of manufactured items and fuel products.

CPI inflation eased slightly to 7.01 per cent in June down from 7.04 per cent in the previous month but stayed above the Reserve Bank of India's target range of 2 - 6 per cent for the sixth straight month, government data released on Tuesday showed.

Even a marginal dip in inflation is good for any economy. Firstly, it shows that there are chances of a strong recovery and with the passage of time economic indicators can be brought under control by exercising various measures by the government and RBI together.

Furthermore, it also shows that the measures being taken by the administration to keep inflation in check are working, even if they take time to bear fruit.

Easing of WPI or CPI, or both bring respite for the economy as a whole and retail consumers who are at the receiving end of the lowered price of goods and services.

The Indian economy in recent months has gathered momentum amid a pent-up demand for services and higher output from industries, as reopening from pandemic restrictions continued.

ICRA Chief Economist Aditi Nayar said minerals and basic metals displayed a sharp month-on-month correction in June 2022, as fears of an impending global recession unfolded, dampening commodity prices.

"We expect the WPI inflation to ease to 13 per cent in July 2022, reflecting the ongoing correction in global commodity and fuel prices as well as domestic food prices," Nayar said.

She said that the RBI could hike interest rates by 60 bps over the next two reviews, taking the repo rate to 5.5 per cent by September 2022, followed by a pause to ascertain the momentum of economic growth.

The RBI mainly looks at retail inflation to frame monetary policy. The next meeting of the RBI's interest-setting monetary policy committee is on August 2-4.

To tame stubbornly high inflation, the RBI has hiked the key interest rate by 90 basis points in the last two months.

Ukraine-Russia crisis and crude oil prices

The ongoing Ukraine-Russia conflict has had an impact on economies around the globe. Even the United States is facing inflationary heat with gas prices going up in recent times.

With many European Union countries, and others like Canada, United States, United kingdom etc. putting a ban on Russian crude imports, there has been a rise in the price of the global crude oil world over.

Countries like India and China have managed to withstand the geopolitical pressure to continue, or even increase, the import of Russian crude oil at favourable and negotiable prices.

In India, the immediate consequence of the war has been domestic inflation with spillovers to financial markets. The sharp rise in crude oil prices has adversely impacted domestic inflation.

Sign of global slowdown and recession

The global economic outlook is clouded by the ongoing war in Europe. Volatile and high crude oil prices have forced many countries' central banks to hold the pace of monetary policy tightening in response to mounting inflationary pressures worldwide.

Some economists are even suggesting that a global slowdown and recession have already begun. Giant service industry leaders like Google and Microsoft in their advance precautionary measures have already started cost-cutting by slowing down the hiring process.

The situation in neighbouring Sri Lanka

Headline inflation in crisis-hit Sri Lanka has surged past 50 per cent for the month of June, the statistics department of Sri Lanka said on Thursday, as the country's economy came to a grinding halt after it ran out of foreign exchange reserves to import fuel and other essentials.

India has been helping the island nation with financial and other aid in order to ensure the country's economy gets back on track.

The problems in Sri Lanka, which can largely be attributed to its falling into the Chinese debt trap are also going to affect India in the long run as both countries have large trade relations and strategically too Colombo is of great importance to New Delhi.

Reserve Bank of India on inflation

Persistently high inflation globally is to stay here longer than anticipated as the ongoing war and sanctions take a toll on economies, threatening a further slowdown to global trade volume, RBI said in its financial stability report released on Thursday.

RBI Governor Shaktikanta Das said price stability is key to maintaining macroeconomic and financial stability and the central bank will undertake necessary measures for the same.

Das exuded confidence that the price situation will gradually improve in the second half of the current fiscal.

He also said the central bank would continue to take monetary measures to anchor inflation with a view to achieving strong and sustainable growth.

The Congress on Wednesday hit out at Finance Minister Nirmala Sitharaman, saying she is more interested in Uranus and Pluto than in steering the country's economy towards recovery, in the context of the Finance Minister tweeting pictures of the recently released first set of images from James Webb Space Telescope by NASA.