Retail inflation hits 8-month high in February, inches up to 6.07%

India’s retail inflation rate inched up to an eight-month high in February, remaining above the upper limit of the central bank’s comfort level of 6 per cent for the second consecutive month, while the wholesale price inflation rate remained in double digits for the eleventh consecutive month. This may make inflationary management challenging amid rising risks to growth in Asia’s third-largest economy.

The data released by the statistics department showed that the consumer price index (CPI)-based inflation rate rose to 6.07 per cent in February from 6.01 per cent in the previous month, driven by food and beverages, clothing and footwear, and fuel and light groups.

Food and beverages rose to a 15-month high of 5.85 per cent as vegetables and edible oils witnessed high inflation. Madan Sabnavis, chief economist at Bank of Baroda, said that as summer approaches, the benefit of the winter season for vegetables will get diluted.

“We believe that CPI inflation for FY23 will be 5.5-6 per cent, and the RBI may consider a change in its forecast too,” he added.

Separately, the data released by the industry department showed that the wholesale price index (WPI)-based inflation rate rose to 13.11 per cent in February after declining for two consecutive months. During February, while inflation for manufactured items accelerated to 9.84 per cent as producers passed on rising input costs to consumers, food and fuel inflation rates eased to 8.19 per cent and 31.5 per cent, respectively. Edible oil inflation jumped to 14.9 per cent in February after showing a declining trajectory since May 2021.

When oil-market companies increase fuel prices, which have remained unchanged since November, it may increase inflationary pressure on the economy, mounting pressure on the Reserve Bank of India to increase interest rates.

“Prices of petroleum products have not been increased in view of the elections in five states. Now that the elections are over, the government is likely to increase the prices of diesel and motor spirit soon. The adverse consequence of the Russia-Ukraine war is likely to keep the prices of crude oil and gas at elevated levels. This may further increase inflationary pressures,” M Govinda Rao, chief economic adviser at Brickwork Ratings, said.

Aditi Nayar, chief economist at ICRA Ratings, said that with the continuing uncertainty stemming from the impact of the Russia-Ukraine conflict, another status quo policy by the RBI is likely in April, despite the February CPI inflation print exceeding 6 per cent. “However, the anchoring of inflationary expectations may warrant a less dovish tone of the policy document,” she added.

The Monetary Policy Committee of the Reserve Bank of India last month kept key policy rates unchanged, contrary to expectations of a hike in the reverse repo rate, flagging the need to revive and sustain growth on a durable basis.