BackCPI inflation surge to a 3-month high in Jan
The unexpected surge in headline inflation has raised the likelihood of further tightening of the monetary policy in April, with economists estimating inflation to remain over the 6% mark over the coming months due to sticky core inflation
Premium NEW DELHI : India’s retail inflation accelerated to a three month high in January, reverting to over the Reserve Bank of India’s upper tolerance band of 6% after a gap of two months, led by a spike in food prices and elevated prices in the non-food segment, official data showed.
The unexpected surge in headline inflation has raised the likelihood of further tightening of the monetary policy in April, with economists estimating inflation to remain over the 6% mark over the coming months due to sticky core inflation.
Inflation based on the Consumer Price Index (CPI) hardened to 6.52% in January, after declining to a one-year low level of 5.72% in December, according to data released by the Ministry of Statistics and Programme Implementation (MoSPI) on Monday.
Core inflation, which is non-food, non-fuel inflation remained over the 6% mark at 6.2% in January.
“The CPI inflation recorded a sharper-than-expected spike in January 2023, led by an unexpectedly acute jump in food inflation. Following the surge in the Jan 2023 CPI inflation print, we have revised our forecast for the fourth quarter of FY23 average CPI inflation to 6.2% from 6.0%, which exceeds the projection released last week by the monetary policy committee, suggesting that another rate hike may be in the offing in April 2023," said Aditi Nayar, chief economist, ICRA Ltd.
Inflation had eased to below the RBI’s upper tolerance band of 6% for the first time in 11 months in November. The RBI in the policy meet last week cut inflation projection 2022-23 to 6.5% from 6.7% estimated earlier, even as central bank governor Shaktikanta Das cautioned about the elevated core inflation.
“We expect the core inflation to remain elevated in February-March 2023 given the ongoing pass-through of higher input costs by producers, amidst robust demand for services," added Nayar.
The RBI led monetary policy committee on 8 February hiked the repo rate for the sixth time by a smaller 25 basis points (bps) to 6.5%.
“The RBI's decision and stance remains vindicated by this number and it would be fair to surmise that if inflation remains above 6% mark in the next couple of months there could be a further rate hike considered though it is a low probability event as things stand. There is scope for some the government to consider action on the taxes front especially fuel - both centre and states to cool down inflation," said Madan Sabnavis, chief economist, Bank of Baroda.
Food inflation rose sharply to 6.19% in January from 4.58% in December led by rising prices of most segments.
Vegetable prices deflation eased to 11.7% in January from 15.08% in December. Inflation hardened in case of cereals, eggs, meat and fish, milk products, and oils and fat. Inflation in cereals rose to 16.18% from 13.79% in the previous month. Inflation in the case of eggs rose to 8.78% from 6.91% in December.
“Rise in food and beverage inflation has been across all commodity groups barring prepared oils and fats, sugar and confectionery, and fruits. Government’s decision of 3 Million tonnes open market sale of wheat was targeted towards cooling off wheat prices. However, despite open market sales the market prices haven’t cooled off," said Sunil Kumar Sinha, principal economist, India Ratings and Research, adding that they expect February headline retail inflation to remain around 6.5%. “It is expected to be moderate from March 2023," he said.
The consumer food price index, which includes both manufactured and non-manufactured food articles, rose to 5.94% in January from 4.19% in December. Food accounts for 54% weight in CPI.
“The broad-based sequential fall in prices of several food items in early-Feb 2023 as well as a high base should dampen the YoY food inflation print for this month below 6%. Besides, the 3.3% rise in acreage has brightened the rabi output prospects, amid early sowing, improved fertiliser availability and healthy reservoir storage, offering some relief," said Nayar of ICRA.
The Economic Survey released last month said that the inflation challenge in FY24 should be a “lot less stiff" than it has been this year. However, it pointed out that the upside risks to India’s projected inflation rates may outweigh the downside risks with any possible re-emergence of Covid-19 in China that can trigger supply chain disruptions, along with the geopolitics associated with oil, which can affect imported inflation.
Inflation on the non-food side remained high with the miscellaneous category reporting the rate of price rise at 6.2%, clothing and footwear at 9.08%, and fuel at 10.8%.
“ This print will further strengthen RBI’s view that stickiness of core inflation could unmoor inflation expectations and lead to second-round effects in the medium term," said Madhavi Arora, Lead Economist, Emkay Global Financial Services
Annual CPI inflation in FY22 stood at 5.5% compared to 6.2% in FY21.
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