India’s retail inflation inches up to 3.8% in March on festival demand
The slowing pace of remonetisation, or pumping new Rs 500 and Rs 2,000 notes into circulation, during March to replace the scrapped Rs 500 and Rs 1,000 notes in November, helped inflation to stay within 4% in the financial year ending March 2017.business Updated: Jul 19, 2017 15:42 IST
Rise in the prices of sugar, confectionary, snacks and fruits pushed up India’s consumer price inflation (CPI) to 3.81% in March from 3.65% in February, government data showed on Wednesday.
The slowing pace of remonetisation, or pumping new Rs 500 and Rs 2,000 notes into circulation, during March to replace the scrapped Rs 500 and Rs 1,000 notes in November, helped inflation to stay within 4% in the financial year ending March 2017.
Retail food inflation was at 1.93% in March, slightly lower than 2.01% in February, as prices of pulses and vegetables fell by a little over 8%.
However, sugar and confectionaries were costlier by 16.5% while prices of snacks, sweets and prepared meals were up 6.13% due to festival demand during Holi.
“The worrisome feature is that non-food components still witnessed high rates--clothing 4.6%, fuel and light 5.6%, housing 5%, transport 6%. Hence, core CPI is a worry,” said Madan Sabnavis, chief economist of Care Ratings.
“We expect CPI inflation to range between 4.5-5% for FY18 assuming a normal monsoon,” he added.
Last month, 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.
Fearing a spurt in CPI and WPI inflation due to pent-up demand after demonetisation, the RBI tapered the remonetisation pace in March.
The increase in currency being circulated was 5.9% week-on-week in January 13. It slowed to 4.6% in February 10, and further to 4% on March 10.
Latest Reserve Bank of India data shows that the currency in circulation increased by 1.7% week-on-week to Rs 13.35 lakh crore as on March 31, 2017.
The RBI also kept policy lending rate unchanged at its April policy review but hiked the reverse repo to suck out extra cash from banks.
Between January 2015 and March 2017, the RBI has lower rates by 175 bps while the government has stepped up spending and speeded up reforms to pump prime the economy amid a 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.