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Retail inflation in February at 6.07%, still above RBI limit

In February, India’s retail inflation rate climbed to an eight-month high, maintaining above the central bank’s comfort level of 6% for the second month in a row, while wholesale price inflation continued to be in double digits for continuous eleventh month in a row. With mounting threats to growth in Asia’s third-largest economy, this might make inflationary management difficult. The consumer price index (CPI)-based inflation rate increased to 6.07 percent in February from 6.01 percent the previous month, according to data issued by the statistics department, with food and beverages, apparel and footwear, and fuel and light groups driving the increase.

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KEY POINTS:

  • Food and beverage inflation reached a 15-month high of 5.85 per cent, owing to significant inflation in vegetables and edible oils.
  • The wholesale pricing index (WPI)-based inflation rate climbed to 13.11 per cent in February after falling for two months, according to data issued by the industry department.
  • While inflation for manufactured goods surged to 9.84 per cent in February as companies passed on higher input prices to consumers, food and fuel inflation rates remained stable.
  • While inflation for manufactured goods increased to 9.84 per cent in February as manufacturers passed on rising input costs to consumers, inflation for food and gasoline fell to 8.19 per cent and 31.5 per cent, respectively. After a downward trend since May 2021, edible oil inflation increased to 14.9 per cent in February.
  • When oil-market corporations raise fuel prices, which have remained steady since November, inflationary pressure on the economy is likely to rise, putting further pressure on the Reserve Bank of India to raise interest rates.

Despite February CPI inflation topping 6%, Aditi Nayar, chief economist at ICRA Ratings, believes that another status quo policy by the RBI is probable in April, given the ongoing uncertainty caused by the impact of the Russia-Ukraine crisis.

The Reserve Bank of India’s Monetary Policy Committee maintained key policy rates constant last month, despite predictions of a raise in the reverse repo rate, citing the need to restore and sustain growth on a long-term basis.

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