India’s consumer price inflation (CPI) inched up to 3.65% in February from 3.17% in January as food prices started rising, government data showed on Tuesday, as remonetisation pace picked up pace and spurred consumption demand.
CPI food inflation firmed up to 2.01% in February from just 0.61% in the previous month.
Earlier, government data showed wholesale price index-based (WPI) inflation flared up to two-and-a-half years high of 6.55% in February from 5.25% in January mainly due to a spurt in mineral and fuel prices while food prices started rising following rapid remonetisation.
The spurt in CPI and WPI inflation adds to the worries of a pent up demand after demonetisation which may prompt Reserve Bank of India to keep policy interest rates unchanged for some more months.
The WPI inflation printed higher than analysts’ expectation of 5.9% as polled by Reuters and was much higher than 0.85% decline in the same month last year. The February WPI inflation was steepest since August 2013 when it printed at 6.99%.
WPI surge can be attributed to mineral prices that went were up 31% while fuels were costlier by 21% as petrol and diesel prices were revised up.
The primary articles index up 5% while the fuels index rose 21% and manufactured products index 3.66% in February.
In the February monetary policy review, the RBI paused on rates as it expects inflation to firm up due to the rapid pace of remonetisation.
“The future trajectory for initial months of FY18 for CPI inflation will largely depend upon how vegetable prices pan out, as inflation excluding food and fuel remaining sticky. We expect FY18 average CPI inflation at 4.8%,” said Soumya Kanti Ghosh, chief economic adviser at State Bank of India.
“We therefore expect RBI to hold rates in the First Bi-monthly Policy Statement for the year 2017-18.”
Since 2015, RBI has lower rates by 175 bps while the government has stepped up spending and speeded up reforms to pump prime the economy amid feeble global recovery.
CSO has projected economic growth is projected at 7.1% for 2016-17 as compared with 7.9% in 2015-16, on expectation of a fall out of demonetisation on the consumption demand during the second half of the fiscal year.
Consumption and investment activity were dampened after Prime Minister Narendra Modi on November 8 announced the bold decision to scrap Rs 500 and Rs 1,000 notes. While the demonetisation weeded out Rs 15.44 lakh crore or 86% of currency from circulation, the government and RBI has been able to pump in about Rs 11.5 lakh crore worth of new notes so far.