Retail inflation climbs to 6.95% on food prices | Latest News India - Hindustan Times

Retail inflation climbs to 6.95% on food prices

By, New Delhi
Apr 13, 2022 01:17 AM IST

India’s benchmark inflation, as measured by the Consumer Price Index (CPI) jumped to 6.95%, the highest in 17 months, in the month of March. This is significantly higher than what analysts expected.

Two key economic statistics released by the National Statistical Office (NSO) on April 12 have underlined the low-growth high-inflation or stagflation threat for the Indian economy once again: inflation at almost 7% and factory output at under 2%. With inflation likely to be higher in April, the Reserve Bank of India may well have no option to start increasing interest rates from June.

Fitch Solutions said elevated retail inflation in India is a key risk to consumer spending over the remainder of this year, as it can erode purchasing
Fitch Solutions said elevated retail inflation in India is a key risk to consumer spending over the remainder of this year, as it can erode purchasing

India’s benchmark inflation, as measured by the Consumer Price Index (CPI) jumped to 6.95%, the highest in 17 months, in the month of March. This is significantly higher than what analysts expected. A Bloomberg poll of economists projected March CPI at 6.4%. This was the third consecutive month when CPI has stayed above the upper limit of RBI’s tolerance band of 6%.

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Meanwhile, the Index of Industrial Production (IIP), which captures the trend in mining, manufacturing and construction sector activity, posted a muted growth of just 1.7% in February 2022, a full percentage point lower than a Bloomberg forecast of economists.

Retail inflation chart
Retail inflation chart

These numbers offer a retrospective vindication for RBI’s Monetary Policy Committee (MPC), which in its resolution on April 8, made upward and downward revisions to its inflation and growth projections for fiscal year 2022-23. MPC now expects India’s 2022-23 GDP growth to be 7.2% (the forecast was 7.8% in February) and retail inflation to be 5.7% (4.5% in February). While the headline growth number of 7.2% for 2022-23 appears to be reasonably high, filtering out the base effect from quarterly growth numbers presents a far more sober picture. (

MPC also made it clear that going forward the policy focus will be “to ensure that inflation remains within the target going forward, while supporting growth”, a change from its previous objective of “an accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy”.

Things could get wors.

The latest CPI data does not capture the full impact of fuel price hikes which began from March 21 onwards. In fact, inflation in the fuel and light sub-category has come down from 8.73% in February 2022 to 7.52% in March 2022. Petrol prices in Delhi increased from 95.41 per litre on March 21, 2022 to 101.81 per litre by March 31. The prices increased to 105.41 by April 12.

In fact, the biggest tailwind to March inflation numbers has come from food prices. Food inflation, which has a share of 39% in the CPI basket, reached 7.7% in March 2022, the highest since November 2020. The prices of two key food groups, vegetables (10.6%) and oil and fats (20.7%) grew in double digits. Prices for cereals and products sub-category grew at 4.9% in March 2022. This number was 3.5% in January and 4% in February. Given the fact that wheat prices have jumped significantly because of the Russian invasion of Ukraine, cereal prices could continue to drive food inflation higher. There have been anecdotal reports of farmers refusing to sell wheat crop at government procurement centres as market prices have crossed Minimum Support Price (MSP) levels.

Thanks to the sharp increase in food inflation, the gap between core and non-core inflation has widened in March. While core inflation and non-core inflation grew at 6% and 6.3% in February, the respective values were 6.3% and 7.6% in March . Core inflation captures the non-food non-fuel part of the CPI basket. Monetary policy interventions such as interest rate hikes are normally considered more effective in controlling core inflation.

A sharp fall in growth for both consumer durables and non-durables – they contracted by 8.2% and 5.5% on an annual basis – in the February IIP data suggests that higher prices might have started putting a squeeze on consumer demand, a trend which could worsen with inflation gaining momentum. This is likely to generate additional headwinds for consumer demand. Experts expect that inflation might have also put a squeeze on corporate profits.

“Corporate profitability, or the average Ebitda (earnings before interest, taxes, depreciation and amortisation) margin, likely declined 200-300 basis points (bps) on-year and 40-60 bps sequentially in the fourth quarter (Q4) of fiscal 2022”, a CRISIL research note dated April 11 based on an analysis of over 300 companies (excluding those in the financial services, and oil and gas sectors) said. A basis point is a hundredth of a percentage point.

The unexpected moderation in IIP numbers in February also means that growth in the quarter ending March could end up being lower than expected. GDP data released by the NSO on February 29 assumed a growth rate of 4.8% in the March quarter. The actual number may be lower.

“After a year of double-digit WPI inflation, cost pressures have increased further for Indian producers. But improving demand conditions will enable them to pass this on to a great extent to retail prices, particularly in services where inflation was subdued so far due to incomplete pick-up in activity,” Dharmakirti Joshi, chief economist, CRISIL Limited, said. “A sharp rise across different energy commodities signals pressure to continue on fuel inflation this fiscal. We expect every $10 per barrel rise in crude price can raise headline CPI inflation by 40 basis points” Joshi said.

“Gradual fuel price increase from end-March 2022 had limited impact on March 2022 inflation. But going forward, structural health inflation, higher commodity prices and weak currency will keep inflation rate elevated at least in first quarter of FY23”, Sunil Kumar Sinha, Principal Economist, India Ratings and Research said in a note. “As the geo-political situation has worsened after the Russia-Ukraine conflict and has the potential to turn into a major headwind for the economy, Ind-Ra believes ongoing industrial recovery will need more policy support. Against this backdrop, Ind-Ra expects the IIP growth to remain in low single digits in the near term,” Sinha added.

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    Roshan Kishore is the Data and Political Economy Editor at Hindustan Times. His weekly column for HT Premium Terms of Trade appears every Friday.

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