Poor aggregate demand is pressurising producers to absorb the relentless price growth of all inputs, from oil to metals and other raw materials.
At the retail level, however, headline inflation trended in the reverse direction in October-April, until the data released on June 14 showed a 207 basis point monthly jump in May to 6.3 percent.
But the higher costs of raw materials have not reflected in consumer price movements, which rose an annual 1.3 percent but declined month-on-month; core retail inflation was subdued at 0.9 percent as producers absorbed the raised costs.
Perhaps they should anticipate an impending decline in corporate profits from the disparate price trends observed at the producer and consumer ends, and what might these signify.
Currently, and in favour of growth, the central bank is engaged in heavy buying of foreign currency and bonds; active in both markets, it is determined to keep either asset price where it wants it to be.
So far, the risk of it spilling on to inflation has been relatively absent given the lack of credit demand — base money growth hasn’t resulted in money supply pacing faster and its translation into credit growth.
The current environment of business resumption, return of suppressed demand, vaccine optimism and positive global impetus may be overwhelming risky signals emitted in other quarters.