Retail inflation quickens to 5.52 pc in March on costlier food, fuel

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Updated: April 12, 2021 8:57 PM

Retail inflation rose to 5.52 per cent in March, mainly on account of higher food prices, government data showed on Monday.

cpiThe rate of price rise in the food basket accelerated to 4.94 per cent in March.

Retail inflation rose to a four-month high of 5.52 per cent in March on account of rising food prices as well as costlier fuel, though it remained within the comfort zone of the Reserve Bank, official data showed on Monday.

The highest year-on-year increase in retail prices was witnessed in the ‘oil and fats’ segment, showing an increase of 24.92 per cent during the month.

While the Consumer Price Index (CPI)-based retail inflation was 5.52 per cent in March over 5.03 per cent in February, the Consumer Food Price Inflation (CFPI) soared to 4.94 per cent from 3.87 per cent during the same period.

In the year-ago month (March 2020), the retail inflation print stood at 5.91 per cent.  The previous high CPI print was 6.93 per cent in November 2020.

The food inflation as a category measured under the head ‘Consumer Food Price Index’ rose to 4.94 per cent during the month, as against 3.87 per cent in February 2021, as per data released by the National Statistical Office (NSO).

Inflation in case of ‘pulses and products’ was 13.25 per cent, up from 12.54 per cent. Likewise, in ‘meat and fish’ and fruits segments, it moved up to 15.09 per cent and 7.86 per cent, respectively.

‘Fuel and light’ inflation increased to 4.5 per cent in March this year from 3.53 per cent a month ago.

However, ‘cereals and products’ turned cheaper further with a negative print at (-)0.69 per cent as against (-) 0.35 per cent. In vegetables basket too, the CPI remained in negative territory.

The rate of price rise in protein-rich item egg was lower at 10.60 per cent from 11.13 per cent in February.

Transport and communication costs spiked by 12.55 per cent in March, while healthcare costs were up by 6.17 per cent, showed the data.

Bandhan Bank Chief Economist Siddhartha Sanyal said the surge in CPI inflation in March was not unexpected.

Further uptick in CPI inflation in the coming months cannot be ruled out either, given continued supply disruption, both in the Indian context as well as globally, he said.

“However, the MPC will likely look through the current spike in inflation, even as it reaches near the upper end of the RBI’s target band, and continue to focus on supporting growth recovery, especially given the fresh bout of uncertainties with rising COVID-19 infections,” Sanyal said.

In his view, the sharp worsening in the COVID-19 situation will mean fresh headwinds for growth recovery and rising uncertainties for financial markets.

ICRA expects a temporary drop in CPI in the next month to around 4 per cent due to the base-effect related to the lockdown a year ago, alongside fall in prices of vegetables and modest dip in retail fuel prices, before an upturn resumes over the remainder of this quarter.

A reversal of the base effect, as well as the decline in prices of vegetables such as onions, is expected to dampen the food inflation to around 2-2.5 per cent in April 2021, Aditi Nayar, economist, ICRA said.

Both the economists expect the RBI to keep the policy rates on hold in the coming months.

Likewise, Emkay Global Financial Services said it does not see the RBI changing its rate stance any sooner, even as their forecast is averaging higher than us and is closer to 5 per cent in FY22E.

“Moreover, the RBI’s reaction function is now contingent on durability of growth recovery and is now led by a more open-ended and state-based guidance amid new uncertainties and the evolving nature of the economy,” said Madhavi Arora, lead economist, Emkay Global Financial Services.

Earlier this month, the RBI had projected the retail inflation at 5 per cent in January-March quarter of 2020-21 and 5.2 per cent in the first two quarters of the current fiscal.

After breaching the upper tolerance threshold of 6 per cent for six consecutive months (June-November 2020), CPI inflation fell in December 2020 and eased further in January 2021 to 4.1 per cent on the back of a sharp correction in vegetable prices and softening of cereal prices.

However, it rebounded to 5.03 per cent in February, driven primarily by base effects.

The Reserve Bank, which mainly factors in the retail inflation while arriving at its monetary policy, has been asked to keep CPI inflation at 4 per cent with a margin of 2 per cent on either side.

The central bank retained the key lending rate (repo) in its last monetary policy citing inflationary concerns.

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