Inflation in India has been on the rise consistently for the past several months and various reasons can be attributed to it such as soaring food and oil prices, among others.

However, most importantly, the sharply depreciating rupee against the dollar is one of the most significant reasons behind it.

India’s retail inflation rose to 7 per cent in August from 6.71 per cent in July and this was due to higher food prices. In fact, retail inflation has been beyond the Reserve Bank of India’s (RBI) tolerance limit of 6 per cent for eight months in a row.

A rise in food prices has led to a spike in retail inflation and this is evident from the fact that inflation in food basket was 7.62 per cent in August, up from 6.69 per cent in July and more than double from 3.11 per cent in August 2021.

Earlier this year, crude oil price had touched $130 a barrel. However, in September, it slid to less than $85 per barrel. But now they may rise again as OPEC+, the group of oil-producing nations, has decided to cut down oil production.

Rising oil prices directly impact inflation in India. This can be gauged from the fact that India imports more than 85 per cent of its oil requirement.

As crude oil prices start to rise, imports will also go up, which in turn will widen the current account deficit (CAD). Widening CAD will further weaken the rupee, as in the face of widening deficit, the country will be forced to sell rupee and buy dollars. A weak rupee has fuelled inflation in India.

The RBI on Sept.30 had decided to hike the repo rate by 50 basis points to 5.4 per cent and focus on withdrawal of accommodation to keep inflation within tolerance limits.

In order to control inflation, the RBI has been hiking repo rates since May this year.

Last week, the central bank had also retained its retail inflation forecast for the current financial year at 6.7 per cent.

The Monetary Policy Committee (MPC) of the RBI had observed on September 30 that inflation is projected to remain above the upper tolerance level of 6 per cent through the first three quarters of 2022-23.

Considering the rising level of inflation, the MPC had decided that further calibrated monetary policy action is needed to keep retail inflation within tolerance limits.

Due to monetary policy tightening across the world, and the continuing war between Ukraine and Russia, the global scenario has worsened as disruptions in supply chains have fuelled price rise.

Resultantly, these prevailing situations have fuelled the risks of recession globally.

This has also impacted stock markets, as India has seen large portfolio outflows worth $13.3 billion during the current financial year.

Volatile global markets have impacted domestic currency and stock markets, thus leading to inflation in India.

Punching new holes, households are expected to tighten their belts as the inflation or prices of essentials and non-essentials are expected to rise in the coming months, said experts and the general public.

Broadly a combination of global and local (glocal) factors -- geopolitical developments, crop production, reduction in crude oil production and the resulting price increase and depreciating rupee -- are expected to heat up the prices.

The heating up of the prices is already happening and will continue to happen.

A top official of a city-based star hotel told IANS that their raw food costs have gone up and is continuing to hike, which have prompted hotels to revised prices of the dishes.

A recent survey of households by the Reserve Bank of India (RBI) showed that most categories of respondents expect higher inflation for both three months and one year ahead. A larger share of households expects higher prices for all product groups.

Overall prices and inflation expectations for the three months ahead period were generally aligned with food products, non-food products and cost of services, while they were more aligned with non-food products and cost of services for the longer horizon of one year, the survey revealed.

In India, the retail inflation rose to 7 per cent in August from 6.71 per cent in July.

The RBI on its part is trying to reign in inflation by increasing the repo rate -- the rate at which it lends to the banks.

The central bank has increased the repo rate by 190 basis points in recent times and the last one was by 50 basis points last month.

Announcing the credit policy RBI Governor Shaktikanta Das said: “There are also upside risks to food prices. Cereal price pressure is spreading from wheat to rice due to the likely lower kharif paddy production.

“The lower sowing for kharif pulses could also cause some pressures. The delayed withdrawal of monsoon and intense rain spells in various regions have already started to impact vegetable prices, especially tomatoes. These risks to food inflation could have an adverse impact on inflation expectations.”