March retail inflation eases below RBI's upper tolerance level

The March consumer price index (CPI) inflation came a week after the RBI's Monetary Policy Committee (MPC) maintained a surprise status quo on interest rates

India’s headline retail inflation declined to a 15-month low of 5.66 per cent in March as compared to 6.44 per cent in the previous month, coming within the tolerance band of the RBI for the first time this year.

The Consumer Price Index (CPI) based inflation for March 2023 is the lowest since December 2021, when it stood at 5.66 per cent. The headline retail inflation stood at 6.95 per cent in March 2022.

There was a sharp moderation in food inflation during the month under review on the back of a decline in vegetable prices.

Food inflation, which accounts for nearly half of the overall consumer price basket, eased to 4.79 per cent in March from 5.95 per cent in February.

Read | RBI hits pause, keeps repo rate unchanged at 6.5 per cent

Vegetable prices in March 2023 were cheaper by 8.51 per cent when compared with the same month last year. Oils and fats became cheaper by 7.86 per cent on a year-on-year basis during the month under review. Meat and fish became cheaper by 1.42 per cent. However, the prices of cereals jumped sharply. Cereals became costlier by 15.27 per cent on a year-on-year basis.

Retail inflation has come within the RBI’s tolerance band of 2-6 per cent for the first time in 2023. The Reserve Bank of India is required to keep retail inflation at 4 per cent, within a band of +/- 2 per cent. The headline retail inflation has now been above the RBI’s medium-term target of 4 per cent for 42 months in a row.

In its first monetary policy review of the current fiscal, the RBI took a surprise decision to keep the policy repo rate unchanged at 6.5 per cent after hiking it cumulatively by 250 basis points in less than a year.

“The MPC has received an endorsement of their decision to pause the rate hike with the March CPI inflation slowing down to 5.66 per cent,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Core inflation for March declined to 5.8 per cent from 6.1 per cent in February. “This is good news from the market perspective. Bulls can take the rally forward on the assumption that we are at the peak of this rate hiking cycle,” Vijayakumar.

Assocham’s Secretary General Deepak Sood said the food inflation is likely to ease further with the pick up in procurement of wheat and other cereals.

Retail inflation declined sharply in rural India. It eased to 5.51 per cent in March 2023 from 6.72 per cent in the previous month. Urban inflation declined to 5.89 per cent during the month under view from 6.10 per cent recorded in February 2023. The sharp drop in rural inflation was partly due to the base effect. Rural inflation stood at 7.66 per cent in March 2022.