In February, the Consumer Price Index (CPI) showed a slight moderation in retail inflation, but it remained above the 6% level for the second month in a row. This indicates that prices of various goods and services have remained high in most categories. As a result, the chances of a hike in interest rates by the Reserve Bank of India (RBI) in its upcoming policy review in April are high.
On Monday, official data was released which indicated that retail inflation stood at 6.44% in February, marginally lower than the previous month’s figure of 6.52%. However, the inflation rate was up from 6.07% as compared to a year ago. Both food and core inflation remained high, at over 6% in February.
Additionally, price pressures were more significant in rural areas than in urban centres.
The CPI inflation rate has remained above the RBI’s medium-term target of 6% for nine months of this financial year. The rate dropped to slightly less than 6% only in November and December 2022. Inflation was expected to remain high in February, but analysts expect some moderation from March onwards due to a favorable base effect.
The latest retail inflation data is the last set of information that will be available before the Monetary Policy Committee meets in April. Persistently high inflation rate may increase the chances of RBI implementing a 25 basis point rate hike during its policy review. Some analysts predict the increase could be even more significant.
The stance contrasts with predictions from Goldman Sachs analysts on Sunday that the US Federal Reserve may not raise interest rates during its March 22 meeting in light of recent stress in the banking sector.
In February, higher cereal prices contributed to a rise in food inflation, although vegetable prices remained in the deflationary zone, which was a relief. The food and beverages basket, which makes up 45.9% of the CPI inflation rate, experienced further inflation, with retail inflation in this category rising from 6.19% in January to 6.26% in February.
In February, while prices of vegetables continued to decline, registering a deflation rate of 11.61% for the fourth consecutive month, prices of cereals continued to rise, with cereal inflation rising to 16.73% from 16.12% in January. This marks the sixth consecutive month of double digit inflation in cereals.
The government has sold 2.8 million tonnes of wheat in the open market from Food Corporation of India (FCI) stocks, which has helped to control wheat prices to some extent.
In February, milk inflation has become a growing concern, with inflation rising to 9.65% from 8.79% in the previous month. Inflation in fruits has also increased from 2.93% to 6.38% in January, indicating that prices of these essential food items are on the rise. However, inflation eased in February in most other food items, including spices (20.2%) and pulses (4.09%).
Core inflation remained a concern, as it stood at 6.1% in February, indicating that prices of services and other goods remained elevated. While CPI inflation in four baskets, including clothing and footwear (8.79%), housing (4.83%), fuel and light (9.9%), and miscellaneous (6.12%) moderated marginally from January to February, it remained high doing. , In particular, cost increases in household goods and personal care products have driven up prices across a diverse range.
Rural inflation remained higher than urban inflation with a rate of 6.72% in February as compared to urban inflation of 6.1%. The high rural inflation is mainly due to the high weighting of the food and beverages basket, which has seen a steady rise in prices.
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