Retail inflation spikes to three-month high of 5.0% in February on higher food prices
Aditi Nayar, Principal Economist, ICRA Ltd, said the CPI inflation has accelerated faster than expected, and already reverted to 5 per cent
Retail inflation rose to a three-month high of 5.03 per cent in February mainly on account of higher food prices, government data showed on Friday.
The Consumer Price Index (CPI) based retail inflation stood at 4.06 per cent in January. The previous high was witnessed at 6.93 per cent in November 2020.
The rate of price rise in the food basket accelerated to 3.87 per cent in February, as against 1.89 per cent in the preceding month, as per data released by the National Statistical Office (NSO).
Inflation in the 'fuel and light' category remained elevated at 3.53 per cent during the month vis-a-vis 3.87 per cent in January.
The inflation print in 'oil and fats' segment moved up to 20.78 per cent from 19.71 per cent.
For fruits, it grew to 6.28 per cent from 4.96 per cent, while in case of vegetables, the rate of deflation was softer at (-)6.27 per cent against (-)15.84 per cent in the preceding month.
Among others, milk and products, pulses and products, and eggs had inflation prints at 2.59 per cent, 12.54 per cent and 11.13 per cent respectively. The corresponding rates were 2.73 per cent, 13.39 per cent and 12.85 per cent in January.
For health category, the rate of price rise was higher at 6.33 per cent as against 6.02 per cent and for 'transport and communication', it rose to 11.36 per cent from 9.32 per cent in January.
Sandeep Malhotra, CEO, IFFCO Kisan Sanchar said, "Consumer price index has inclined up, primarily on account of food prices, particularly edible oils in-line with trends exhibited in international market. These prices may continue to be higher for sometime on back of easy liquidity prevailing in the market."
Aditi Nayar, Principal Economist, ICRA Ltd, said the CPI inflation has accelerated faster than expected, and already reverted to 5 per cent.
"The core inflation hardened to a three-month high 5.7 per cent in February 2021 from 5.5 per cent in the previous month, reiterating that an uptick in commodity prices, rising demand, and emerging pricing power will keep inflationary pressures intact," she said.
While the first round impact of higher fuel prices on the CPI inflation is limited, the second round impact is substantially larger. Unless taxes on fuels are cut to a sizeable extent, inflationary pressures are likely to rule out further rate cuts, she said.
"We expect the CPI inflation to rise further in March 2021, before recording a base-effect led dip in April 2021 reflecting the impact of the spike in inflation during the lockdown," she added.
Rahul Gupta, Head of Research- Currency, Emkay Global Financial Services, said rise in CPI inflation is mostly on the back of rise in food inflation and fuel.
The rising global crude prices will continue to add inflationary risks going ahead and CPI will remain elevated, he emphasised.
The Reserve Bank, which mainly factors in the retail inflation while arriving at its monetary policy, has been asked to keep CPI inflation at 4 per cent with a margin of 2 per cent on either side.
Currently CPI is within RBI's target range but at the April meeting, the central bank will have to tackle with increasing inflation and rising bond yields, as cascading impact may slow India's growth, Gupta said.
"We continue to expect a status quo on the repo rate through 2021, with a dimming likelihood of an early change in stance from accommodative to neutral," Nayar said.