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Retail inflation surges to 3-month high of 6.5%

India’s consumer inflation hit a three-month high in January at 6.5%, reversing its downtrend because of higher food prices. The year-on-year increase in the consumer price index (CPI) breached the central bank’s upper tolerance limit of 6%, after keeping within targeted range in November and December, according to the Ministry of Statistics and Programme Implementation (MoSPI).

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About Food inflation:

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Food inflation –which accounts for 40% of the CPI basket – rose to 5.94% year on year in January 2023 from 4.19% in the previous month, the data show. While the spike in retail inflation was mainly caused by a surge in food prices, non-food sector prices also remained high.

About Core Inflation:

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Core inflation, which excludes food and fuel prices, stood at 6.3% in January. In a bid to rein in inflation, the Reserve Bank of India (RBI) had raised its policy interest rates by a total of 250 basis points since May 2022. The next monetary policy meeting is scheduled on 3-6 April 2023.

What is Core Inflation:

  • Core inflation is Headline inflation minus the Food and Fuel inflation.
  • Headline inflation refers to the rate of change in the CPI, a measure of the average price of a standard basket of goods and services consumed by a typical family.
  • Core inflation measures the change in average consumer prices after excluding transient or temporary price volatility, such as in commodities like food and energy. It reflects an economy’s inflationary trend.

RBI’s Policy Rate Hiked:

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On 8 February, the central hiked its policy interest rates by 25 basis points to 6.5% as it forecasts retail inflation for the January-March 2023 quarter to be around 5.7% and expects core inflation to remain high.

About Index of Industrial Production (IIP):

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Meanwhile, India’s factory output in December 2022, as measured through the Index of Industrial Production (IIP), slipped to 4.3%, from 7.3% in November, MoSPI data showed. This was, however, significantly higher than the 1% growth recorded in the same period last year. For April-December 2022, the first nine months of India’s current fiscal year, India’s factory output grew by 5.4%, according to official data.

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