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BENGALURU/NEW DELHI : India’s retail inflation raced to a 17-month high in March, led by a sharper-than-expected spike in food and manufactured goods prices, official data released on Tuesday showed.

Inflation based on the Consumer Price Index (CPI) quickened to 6.95% in March from 6.07% in the previous month, according to data released by the Ministry of Statistics and Programme Implementation (MoSPI). Since January, retail inflation has stayed above 6%, the upper tolerance level of the Reserve Bank of India’s inflation target band.

Mixed signals
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Mixed signals

The inflation figure is way above the 6.36% median estimate of 24 economists surveyed in a Mint poll.

Meanwhile, industrial activity recovered mildly to a four-month high in February, as lingering geopolitical risks and cost pressures cloud immediate recovery prospects. The index of industrial production (IIP) growth edged up to 1.7% in February from 1.46% in January on an annual basis.

Economists cautioned that inflation would likely remain elevated over the next quarter as high energy and commodity prices due to the Russia-Ukraine conflict transmit to transportation and other consumer-facing sectors, setting the stage for an interest rate hike in the latter half of the current fiscal. The RBI on Friday sharply revised the inflation forecast upwards for 2022-23 to 5.7% from 4.5%.

“While we were expecting inflation to increase in March 2022, the pace of increase is higher than our expectations and is alarming. Even more worrying aspect is that the increase in inflation is across most categories, resulting in core inflation also breaching the 6% level. This reflects build-up of price pressures in the economy due to persistent commodity price increases and amplified supply bottlenecks," said Rajani Sinha, chief economist, Care Ratings. “The pass-through of elevated global oil prices to the transport sector could indirectly affect prices of other commodities, adding to the core price pressures," added Sinha, who expects retail inflation to remain close to 6% in the coming months.

The acceleration in retail inflation was led by a spike in food inflation to a 16-month high of 7.68% in March from 5.93% in the previous month. Inflation in most items touched multi-month highs. According to an analysis by Sunil Kumar Sinha, principal economist at India Ratings and Research, inflation was the highest in 19 months for cereals; 16 months in milk and vegetables; 100 months in clothing; 111 months in footwear; 102 months in household goods and services; and 13 months in personal care.

Core inflation, which is non-food, non-fuel, jumped to a 10-month high of 6.29% in March from 5.96% in February.

“The surge in global commodity prices and the disruptions caused by the Russia-Ukraine conflict, and the supply chain implications of the continued lockdowns in China since March 2022 following the outbreak of a fresh covid-19 wave in the country do not augur well for output of those sectors, including automobiles, that are dependent on key raw materials provided by Russia, Ukraine or China, in the absence of any other alternatives," said Aditi Nayar, chief economist, ICRA Ltd.

Manufacturing, which accounts for 77% of IIP, saw growth fall to 0.8% in February from 1.31% in January. The capital goods sector grew by 1.1% in February compared to 1.3% in January, indicating weakness in the industrial sector. Consumer durables, which comprises white goods, declined sharply for the fifth straight month in February, reporting an 8.2% contraction compared to a 3.3% decline seen in January. Consumer non-durables, which represent inelastic demand, reported a 5.5% contraction in February compared to a 2.1% growth in January. The infrastructure or construction goods segment grew by 9.4% in February from 5.4% in January. Electricity production growth as per the index grew by 4.5% in February compared to 0.8% growth in the previous month.

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