India’s Retail Inflation Likely To Have Slowed In February But Remains Beyond RBI Limit: Report

India’s retail inflation in February is likely to have eased after remaining at 6.52 per cent in January. However, according to a Reuters‘ poll, the CPI inflation stays above the Reserve Bank of India’s upper threshold for a second straight month in February.

Rises in food prices, which account for nearly half of the Consumer Price Index (CPI) basket, likely moderated last month. However, the bulk of the slowdown probably came from easing international prices and the government’s efforts to provide additional supplies of wheat.

In January, India’s retail inflation rose to 6.52 per cent on costly food items and fuel. With this, the inflation breached the RBI’s upper tolerance limit of 6 per cent after remaining under it for the previous two consecutive months of November and December.

In December 2022, the Consumer Price Index (CPI)-based inflation had eased to 5.72 per cent. In November 2022, it had fallen to 5.88 per cent. The retail inflation came under the RBI’s 2-6 per cent band in November with 5.88 per cent rate after remaining beyond it for 10 months consecutively.

Despite those temporary measures, lower crop yields because of warmer-than-usual temperatures last year and this year were likely to keep inflation elevated in the near-term period.

The March 2-9 Reuters poll of 43 economists showed inflation, as measured by the CPI, likely fell to an annual 6.35 per cent in February from 6.52 per cent in January.

Only one economist expected inflation to fall below the 6.00 per cent mark, the upper limit of the RBI’s tolerance band. Forecasts ranged from 5.89 per cent to 6.70 per cent for the data, which are due to be released at 1200 GMT on Monday, March 13.

“With vegetable prices normalising, inflation has started to harden as the inherent price pressures have barely shown any meaningful signs of moderation. In fact, food inflation ex-pulses and vegetables has now reached a nine-and-a-half-year high,” wrote Kunal Kundu, India economist at Societe Generale, according to a Reuters report.

“While we do not expect a sharp rise in inflation over the next few quarters, the pace of easing would be much slower than expected, especially given the likely impact of El Nino weather condition on food prices. We cannot rule out (a) further upside surprise to inflation.”

“With vegetable prices normalising, inflation has started to harden as the inherent price pressures have barely shown any meaningful signs of moderation. In fact, food inflation ex-pulses and vegetables has now reached a nine-and-a-half-year high,” wrote Kunal Kundu, India economist at Societe Generale.

“While we do not expect a sharp rise in inflation over the next few quarters, the pace of easing would be much slower than expected, especially given the likely impact of El Nino weather condition on food prices. We cannot rule out (a) further upside surprise to inflation.”

“For the RBI, it’s a close call at its next meeting — we see the balance of risks between ‘hold’ and ‘hike’ as even. If next week’s news on inflation in February disappoints, the RBI could easily be swayed into another hike,” wrote Alexandra Hermann, lead economist at Oxford Economics.

A separate Reuters poll showed inflation would not reach the RBI’s medium-term inflation target of 4 per cent by the end of next year.

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