Retail Inflation Eases To 6.44% In February

India's retail inflation cooled in February as prices declined in certain food categories and remained stable in others.

The Consumer Price Index inflation stood at 6.44% in February in comparison to 6.52% in January, according to the data from the Ministry of Statistics and Programme Implementation on Monday. A panel of 32 economists tracked by Bloomberg polled an estimate of 6.4% for the month.

Core inflation, excluding food, fuel, and light segments, during the month stood at 6.23%, against 6.28% a month ago.

With this, retail inflation remains above the RBI's tolerance band of 2-6% for the second month in a row. It was last below the upper band of 6% in November and December before rising in January to a three-month high.

Inflation is expected to "remain above 6% in March too," said Madan Sabnavis, chief economist at the Bank of Baroda.

"The core inflation continues to remain above 6% with a steady increase in the prices of services. Further, the average headline inflation figure for Q4 FY23, in all likelihood, is set to be higher than the RBI forecast at around 6.2–6.4%," said Suman Chowdhury, chief analytical officer at Acuité Ratings & Research.

The sticky inflation will likely force the central banks' hand to continue raising rates for longer, the analysts said.

"There is a strong case for expecting the RBI to increase the repo rate in the April meeting by 25 basis points," said Sabnavis.

"Additionally, the Fed may continue on its rate hike trail in March and April in tranches of 25 basis points. In our opinion, therefore, a 25 basis point hike in the repo rate in early April is very much on the cards, and a pause may be unlikely till the inflationary risks come down substantially," said Chowdhury.

The Consumer Food Price Index inflation stood at 5.95% in February, against 6% in January. Food and beverage prices increased 6.26% during the month, compared with 6.19% in January. The Consumer Price Index increased to 176.8 in February, up 0.17% month-on-month from January.

• Cereal prices rose by 16.73% in February, compared to 16.12% in January.

• Inflation in meat and fish was at 3.39%, as against 6.04% last month.

• Inflation in eggs was at 4.32%, as against 8.78% last month.

• Inflation in milk and milk products was at 9.65%, compared to 8.79% in the previous month.

• Prices of oils and fats declined 0.49%, compared with a rise of 1.41% in January.

• Vegetable prices decline 11.61%, as against a dip of 11.7% last month.

• Pulses inflation was at 4.09%, as against 4.27% in the preceding month.

• Clothing and footwear inflation was at 8.79%, compared with 9.08% a month ago.

• Housing inflation rose by 4.83%, as against 4.62% in the previous month.

• Fuel and light inflation stood at 9.9% in January, as against 10.84% in January.

Food products are up by 6.3%, driven by cereals with 16.7%, noted Sabnavis. "The prevailing heat wave has cast a shadow on the prospects of the wheat crop, and we may expect a shortfall, which will further exacerbate inflation."

There is only a marginal decline in headline inflation print, and food prices remain high on account of a sequential rise in cereal prices, said Chowdhury.

"While the government has been making an effort to stem the rise of cereal prices through the open market sale of wheat from the buffer stocks, it has yet to yield the desired results," the analyst said.

"There is concern about milk inflation at 9.7%. The prices have been raised often this year—at least three times—to adjust for higher fodder costs. These prices will never come down," the Bank of Baroda chief economist said.

The 9.9% rise in fuel and light prices can be attributed to "a revision in the price of LPG of late," he said.

Although vegetable prices have cooled down in line with seasonal expectations, milk prices have increased further, said Chowdhury.