India’s retail inflation, measured by the Consumer Price Index (CPI), jumped to 6.07 per cent for the month of February, shooting over the Reserve Bank of India’s threshold of 6 per cent for the second month in a row, according to the government data. However, it may not yet prompt the Reserve Bank of India to shift stance away from a loose monetary policy, at least in the near future. “The inflation trajectory is weighed heavily on the upside with elevated commodity prices, pass through of earlier fuel price hikes and the higher raw material costs. However, we do not expect any shift in policy decisions and stance in near term as RBI continues to focus on durable growth,” Upasna Bhardwaj, Senior Economist, Kotak Mahindra Bank, said.
“We expect it to rise further over the next six months. With the Russia-Ukraine war likely to result in prolonged global price pressures and supply challenges, we think that the likelihood of CPI inflation rising to 7 per cent has increased substantially. However, we do not expect this to impinge on the RBI’s decision to keep interest rates unchanged at the April policy meeting. But we think that intensifying inflation risks may finally push the central bank to communicate its monetary tightening path more clearly,” Priyanka Kishore, Head of India and SEA Economics, Oxford Economics, said.
Rise in CPI inflation not just due to base effect
The retail inflation for the previous month of January was at 6.01 per cent. Earlier, in its bimonthly monetary policy meet in February, the RBI had said the CPI inflation is expected at 5.3 per cent for FY22 and 4.5 per cent for FY23. The February CPI print may still not increase the average retail inflation beyond 5.5% for the current financial year 2021-22, Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research, said.
The gradual rise in CPI inflation is not just the base factor at play, “since there is a sequential expansion of 0.24 per cent in the CPI as compared to a contraction last month,” Suman Chowdhury said, adding, “it is to be noted that it does not yet take into account the impact of the geo-political conflict between Russia and Ukraine and the incremental effect of crude oil beyond USD 100 per barrel.”
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CPI inflation for select items
–Eggs: 4.15 per cent in February vs 2.23 per cent in January
–Oils & fats: 16.44 per cent in in February vs 18.70 per cent in January
–Vegetables: 6.13 per cent in February vs 5.19 per cent in January
–Clothing & footwear: 8.86 per cent in February vs 8.84 per cent in January
–Fuel & light: 8.73 per cent in February vs 9.32 per cent in January
Suman Chowdhury said, “Typical of the season, the sequential food inflation has been flat and this is mainly characterised by better availability of vegetables and fruits. While there has been a sequential rise for clothing and footwear, housing, fuel and light as well as the miscellaneous, it is fairly moderate for now. Nevertheless, core inflation continues to be elevated and at 6.2% for Feb-22, almost at similar levels as in the previous month.” For FY23, our forecast currently stands at 5.0 per cent vs 4.5 per cent from RBI, he added.
Earlier today, the government data released on inflation in wholesale prices said that it has resurged to 13.11 per cent in February. Inflation measured by the Wholesale Price Index (WPI) was at 12.96 per cent in January after hitting a record high of 14.9 per cent in November 2021. The higher WPI inflation may affect the consumer prices as producers might eventually pass on the high cost to consumers.
