This Article is From Mar 14, 2022

Retail Inflation Rises Further To 6.07% In February, Above RBI's Target Band

Retail inflation rose further in February to 6.07 per cent annually, indicating price pressures above the RBI's top end of the target range band.

Retail Inflation Rises Further To 6.07% In February, Above RBI's Target Band

Retail inflation rises further to 6.07% in February, above RBI's 2-6% target band

India's retail inflation rose a touch further in February to 6.07 per cent from a year ago, up also from 6.01 per cent in January, above the Reserve Bank of India's upper end of its target bank for a second month in a row, government data released on Monday showed.

The Consumer Price Index (CPI) based retail inflation was 5.03 per cent in February 2021.

According to the data released by the National Statistical Office (NSO), the rate of price rise in the food basket was 5.89 per cent in February, up from 5.43 per in January.

The RBI mainly factors in the CPI-based inflation while arriving at its bi-monthly monetary policy. That higher inflation was for a period before the surge in crude oil prices from the escalating Russia-Ukraine war.

Crude oil prices have risen to multi-decade highs on supply concerns from sanctions on Russia, including an embargo on oil imports from Moscow for its invasion of Ukraine, the biggest attack on a European state since World War Two.

"Inflation printed at 6.07 per cent in February, slightly higher than our estimates. This print, although does not reflect the increase in commodity prices due to Russia-Ukraine crisis. We expect inflation to rise further above 6 per cent in March," said Sakshi Gupta, Senior Economist, HDFC BANK.

Fears of runaway inflation and the US Federal Reserve all but set to lift interest rates this week after price pressures rose at the fastest in 40 years there, is likely to pressure India's central bank, which is focussed on growth. But analysts predicted the RBI to look through inflation and continue to support the nascent recovery.

“CPI inflation reading came marginally north of RBIs upper threshold limit. The inflation trajectory is weighed heavily on the upside with elevated commodity prices, pass through of earlier fuel price hikes and the higher raw material costs. However, we do not expect any shift in policy decisions and stance  in near term as RBI continues to focus on durable growth," said Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank.

Still, higher inflation and the Fed tag-team will add to the RBI's dilemna further.

"This is just not the base factor at play since there is a sequential expansion of 0.24 per cent in the CPI as compared to a contraction last is to be noted that it does not yet take into account the impact of the geo-political conflict between Russia and Ukraine and the incremental effect of crude oil beyond $100 per barrel," said Suman Chowdhury, Chief Analytical Officer at Acuité Ratings & Research.

A Reuters poll of economists had predicted annual inflation to touch 5.93%, a shade lower than the upper limit of the RBI's 2 per cent to 6 percent target band.

Government data released earlier on Monday showed, wholesale price-based inflation (WPI) accelerated to 13.11 per cent in February from a year ago, compared to 12.96 per cent in the previous month.

That was largely driven by higher fuel prices, up 31.50 per cent year-on-year, versus 32.27 per cent in January.

WPI inflation has remained in double digits for the eleventh month in a row, beginning April last year.

"Clearly, the data reinforces the presence of inflationary pressures in the manufacturing and the services sector," added Acuité Ratings & Research's Mr Chowdhury, referring to the WPI data.