India’s retail inflation rate, as measured by the Consumer Price Index (CPI), climbed to 6.01% in January 2022, as per data released by the National Statistical Office (NSO) on February 14 -- with the rise being powered by food inflation.
The latest numbers have taken the benchmark inflation rate above the 6% upper limit of RBI’s tolerance band, the first time this has happened since June 2021. January is the fourth successive month when retail inflation has increased in the country.
The latest inflation numbers are on expected lines. A Bloomberg forecast of 40 economists had estimated CPI growth in January to be 6%.
A disaggregated reading of the inflation numbers shows that tailwinds to prices are becoming broad based in nature.
While the initial surge in headline inflation was a result of high core inflation – it measures prices of the non-food non-fuel component of the CPI basket – non-core inflation, including the food component has been gathering momentum in the past few months.
At 6.02%, core inflation continues to be high, even though it has been falling over the past four months. However, non-core inflation has increased sharply from 2.42% in September 2021 to reach 5.99% in January.
{{/usCountry}}At 6.02%, core inflation continues to be high, even though it has been falling over the past four months. However, non-core inflation has increased sharply from 2.42% in September 2021 to reach 5.99% in January.
{{/usCountry}}Food inflation, which accounts for 39% of the CPI basket has increased from 0.68% in September 2021 to reach 5.43% in January .
In another set of statistics released on February 14, India’s wholesale price index (WPI) was reported to have grown at 12.96% in January 2022. While this is a moderation over the 13.56% number for December 2021, January was the tenth successive month when the WPI inflation was in double digits. RBI expects a softening in inflation going forward.
The Monetary Policy Committee’s resolution released on February 10 projected that CPI inflation in the quarter ending March will be 5.77% and then come down to 4.5% in the June quarter.
Speaking at a press briefing, RBI Governor Shaktikanta Das said inflation is also high because of the base effect (a lower reading a year ago), specifically pointing to the role this played in the three months ended December. He said the January number “should not surprise or create alarm.”
Independent experts agree with RBI’s assessment that inflation will see some moderation going forward.
“On a sequential basis, food prices are easing, the tax cuts on edible oils are possibly starting to penetrate and the peak in core inflation is likely behind us. While there may be some overdue increases in motor vehicles fuel costs March onwards, the broad mild downtrend in headline inflation ahead is unlikely to get disturbed meaningfully”, Madhavi Arora, lead economist at Emkay Securities said in a note.