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India’s retail inflation jumped to a 17-month high of 6.95 percent in March from 6.07 percent in February, according to data released on April 12 by the Ministry of Statistics and Programme Implementation.
The Consumer Price Index (CPI) inflation print for March is well above the consensus estimate. As per a Reuters poll, economists had expected CPI inflation to rise to 6.35 percent.
This is the third consecutive month in which inflation has come in above the 6 percent upper bound of the Reserve Bank of India’s (RBI) mandate, averaging 6.3 percent in January-March. As such, 6 percent-plus inflation in April-June and July-September will see the Monetary Policy Committee (MPC) failing to meet its mandate.
The RBI’s latest forecast pegs average CPI inflation at 6.3 percent in April-June and 5.8 percent in July-September.
The sharp increase in CPI inflation in March was driven by an increase in prices across all but one of the major groups of the basket, with only the index of the housing component of the CPI declining on a month-on-month basis. This suggests the strengthening of price pressures.
| Mar 2022 inflation | Change in the index, Mar 2022 vs Feb 2022 | |
| CPI | 6.95% | 1.0% |
| Food index | 7.68% | 1.4% |
| Cereals | 4.93% | 0.8% |
| Meat, fish | 9.63% | 5.0% |
| Oils, fats | 18.79% | 5.3% |
| Vegetables | 11.64% | -1.6% |
| Pulses | 2.57% | 0.1% |
| Clothing, footwear | 9.40% | 0.9% |
| Housing | 3.38% | -0.1% |
| Fuel, light | 7.52% | 0.9% |
| Miscellaneous | 7.02% | 0.7% |
Among food items, some of the largest sequential price increases were visible in animal proteins, with the index for meat and fish surging by 5.0 percent month-on-month in March. Worryingly, the index for oils and fats rose by an even larger 5.3 percent on a month-on-month basis, which is likely to raise pressure on the government to make edible oils cheaper.
If the increase in the price of certain food items was larger than anticipated, fuel prices rose as expected. The fuel and light group of the CPI posted an annual inflation rate of 7.52 percent, with the index for March showing an increase of 0.9 percent from February.
In further bad news, core inflation – or inflation excluding the volatile food and fuel items – rose to 6.4 percent in March from 6.0 percent the previous month, calculations done by Moneycontrol showed.
The latest inflation print comes after the MPC left the repo rate unchanged at a record low of 4 percent on April 8, although Governor Shaktikanta Das said inflation had now taken overtaken growth in the central bank’s sequence of priorities.
“With the MPC having signaled an imminent stance change, the rate hike cycle may begin as early as June 2022, if the next CPI inflation print doesn’t significantly cool off from the March 2022 level,” said Aditi Nayar, ICRA’s chief economist.
“We now expect to see 50-75 bps of rate hikes by the end of Q2 FY23, followed by a pause in H2 FY23, and perhaps another 50 bps of hikes in FY24,” Nayar said.
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