Inflation soars to 17-month high in March; IIP gathers pace in Feb | Mint
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Business News/ Economy / Inflation soars to 17-month high in March; IIP gathers pace in Feb
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Inflation soars to 17-month high in March; IIP gathers pace in Feb

Food inflation jumped to 7.68% in the reporting month as compared to 5.85% in February.

The RBI surprised markets Friday by saying it now prioritises tackling inflation over supporting economic growth, shifting gears after more than two years.Premium
The RBI surprised markets Friday by saying it now prioritises tackling inflation over supporting economic growth, shifting gears after more than two years.

India's retail inflation accelerated to 6.95% in March, signalling a sustained food price rise, government data showed on Tuesday. Inflation, as measured by the CPI (Consumer Price Index) was 6.07% in the month of February.

Food inflation jumped to 7.68% in the reporting month as compared to 5.85% in February.

Investors will be worried about the retail inflation data, which came well above the Reserve Bank's upper tolerance band for a third straight month.

Food prices, which account for nearly half the inflation basket, remained elevated as supply chain problems related to the Russia-Ukraine war disrupt global grain production, supply of edible oils and fertiliser exports.

Prices of palm oil, the world's most widely used vegetable oil, surged nearly 50% this year. Food price rises are sharply felt by millions living below the poverty line who have already taken a hit on jobs and incomes due to the pandemic.

"With the MPC (Monetary Policy Committee) having signalled an imminent stance change, the rate hike cycle may begin as early as June 2022, if the next CPI inflation print doesn't significantly cool off from the March 2022 level. We now expect to see 50-75 bps of rate hikes by the end of Q2 FY2023, followed by a pause in the second half of FY2023, and perhaps another 50 bps of hikes in FY2024," said Aditi Nayar, Chief Economist at Icra.

The RBI surprised markets Friday by saying it now prioritises tackling inflation over supporting economic growth, shifting gears after more than two years. Governor Shaktikanta Das and his colleagues signaled they will focus on withdrawing accommodative policies, while introducing a new 3.75% standing deposit facility rate to soak up excess cash from lenders.

"With the CPI inflation surging in March 2022, we expect the 10-year G-sec yield to cross 7.2% imminently. With dimming hopes of early bond index inclusion, the 10-year G-sec yield could test 7.5% in H1 FY23," Nayar said.

The policy decision last week effectively kicked off a tightening cycle to tackle inflation, which the Central bank sees at 5.7% in the current fiscal year, against a 4.5% forecast earlier.

"March headline inflation was driven both by food and fuel prices. The food prices inched up sequentially after a three month decline due to seasonal fluctuations; whereas the fuel prices rose pressured by escalating global fuel prices. As the domestic fuel price hikes were kept on hold for most part of Mar’22, the complete transmission of global fuel prices on domestic prices is expected to be seen in April print," said Vivek Rathi, Director-Research at Knight Frank India.

"The RBI has accounted for 6.3% for the Jun’22 quarter and hence some pressure on account of elevated inflation level is likely to continue in near future," Rathi said.

Meanwhile, the index of industrial production (IIP) grew 1.7% in February as against 1.3% in January. IIP growth slumped to a 10-month low of 0.4% in December last year.

The mining output growth also accelerated to 4.5% during the February month as compared to a rise of 2.8% in January, while manufacturing sector growth slowed marginally to 0.8% as against a growth of 1.1% in the preceding month.

Meanwhile, the electricity generation growth too surged slowed in February, rising 4.5% versus 0.9% in January.

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Published: 12 Apr 2022, 05:28 PM IST
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