India's retail inflation for February decreased to 6.44 percent in February as against 6.52 percent in January 2023, but it still stayed above the 6% level for the second consecutive month. This indicates that prices for various goods and services remained high across most categories. As a result, there is a higher possibility of the Reserve Bank of India (RBI) increasing interest rates in its upcoming policy review in April. However, compared to a year ago, the inflation rate had increased from 6.07%.
CPI CONTRIBUTION
In February, higher cereal prices contributed to the increase in food inflation, even though vegetable prices remained in the deflationary zone, which was a relief. The food and beverages basket, which makes up 45.9% of the CPI inflation rate, experienced further inflation, with retail inflation in this category increasing to 6.26% in February from 6.19% in January.
While vegetable prices continued to decrease, registering a deflation rate of 11.61% for the fourth consecutive month, cereal prices continued to increase, with cereal inflation hardening further to 16.73% from 16.12% in January. This marked the sixth consecutive month of double-digit inflation in cereals.
The government has sold 2.8 million tonnes of wheat in the open market from the Food Corporation of India (FCI) stock, which has helped to some extent in controlling the prices of wheat.
RBI FORCAST
The RBI had forecast retail inflation for FY23 at 6.5 per cent and for Q4 at 5.7 per cent. Retail inflation for FY24 has been forecast at 5.3 per cent with Q1 at 5 per cent, Q2 at 5.4 per cent, Q3 at 5.4 per cent and Q4 at 5.6 per cent. Since May last year, the RBI has increased the short-term lending rate by 225 basis points to contain inflation.
REFERENCE (MOSPI PRESS RELEASE) -https://www.mospi.gov.in/sites/default/files/press_release/CPI_PR_13mar23.pdf
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Ritesh