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Home / Economy / Retail inflation climbs to 5.52% in March, IIP contracts 3.6% in February

Retail inflation climbed to 5.52% in March, highest in last four months, according to the data official data released by the ministry of statistics and programme implementation (MoSPI) on Monday. The rise in inflation was due to high food prices, experts believe. Consumer Food Price Index rose to 4.94% in March, according to the ministry data. The inflation fell to 4.06% in January, lowest since October 2019. Retail inflation rose steeply to 5.03% in February as food and fuel prices went up.

Core inflation also surged to 29-month high of 5.7% in March. Food inflation rose to four-month high of 4.9% YoY in March 21, broadly in line with our forecast of 4.7%, said Nikhil Gupta, chief economist at Motilal Oswal Financial Services.

“The dual worry continues, the retail inflation has stayed above the 5% mark for two months post a brief cool-off in December and January month. The core inflation is near the 6%-mark. Rising crude prices and supply-led disruption due to any lockdown may lead to a further rise in inflation," said Nish Bhatt, founder and chief executive officer, Millwood Kane International.

Meanwhile, the Index of Industrial Production (IIP) remained in contraction zone. It contracted by 3.6% for February. It contracted by 1.6% in January. Industrial output has de-grown for two months in a row, despite near-normal activities in February. Any major lockdown and mass migration of laborers due to a second wave poses a risk to industrial activities/output," Bhatt added.

"Overall, while both data worsened vis-a-vis previous month, there were no surprises. Going forward, CPI is likely to ease to <5% (7.2% in Apr'20) in Apr'21 and IIP could grow 20% YoY in Mar'21 (-18.6% YoY in Mar'20) due to base effect," Gupta added.

"However, local lockdowns, if persist, could impact services demand negatively, will put downward pressure on Q1FY22 core inflation and act as a balancing factor to emerging upside risks to inflation," said Madhavi Arora, lead economist, Emkay Global Financial Services.

The Reserve Bank of India (RBI) monetary policy committee (MPC) held its policy repurchase (repo) rate unchanged at 4% at its monetary policy meeting on 7 April. It also maintained its stance to keep monetary policy accommodative for as long as necessary to sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target range of 4%, plus or minus 2%.

Fitch Solutions earlier revised its inflation rate forecast to an average of 5% in FY22, up from 4.6% previously, due to elevated inflationary pressures. The elevated inflation "underscores our expectation for the RBI to keep its policy rate on hold," it said.

India has been severely affected by coronavirus pandemic. The daily caseload remained over 1 lakh for the last six days.

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