“There may be some more downside to services inflation, but a mean reversion or normalisation will happen in the second half of the year,” said Rahul Bajoria, MD & head EM (ex-Asia), Barclays.
“However, rates are unlikely to rise to higher levels witnessed postpandemic,” he added.
India’s services inflation declined to 3.1% in February, its lowest level in the series since 2016. Services inflation averaged 5.2% in FY23.
Services account for 23.4% of the total inflation basket and over half of the core inflation categories, which also include goods like household items.
Experts indicate that some of this rise in services inflation may be evident from now on.
“Services inflation will pick up as prices adjust. Airfares are up, as are health costs. Once the holiday season starts, recreation will rise. The pent-up phenomenon has not come in the way of demand. We, hence, need to be prepared for higher inflation. Food bills in the hospitality business also are rising,” said Madan Sabnavis, chief economist, Bank of Baroda.
While economists agree that a pickup in services inflation may be on the anvil, they note that the services inflation easing when the economy is roaring may be representative of the K-shaped recovery post-pandemic.
“New India is rising rapidly, while ‘old’ India is growing at a slower pace. This can be seen particularly in the softer rise in the price of services, which the bottom-of-the-pyramid households tend to consume more of when incomes rise,” HSBC said in a note published last week.
Paras Jasrai, senior analyst, India Ratings and Research, concurs. Jasrai points out that “There is stress at the bottom of the pyramid, which could be evident in falling services inflation.” However, not all are convinced.
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