Retail inflation figures reflect impact of rising fuel rates, say experts

The rate of price rise in the food basket accelerated to 3.87 per cent in February, as against 1.89 per cent in the preceding month

India's retail inflation rose to 5.03% in February from a year ago, government data released on Friday showed, and experts believe that rising fuel prices may be the reason behind it.

"Inflation inched higher on the back of rising fuel prices and inflationary pressures in certain food items like onions, meat and eggs. As we had suspected, perhaps the low point for inflation is behind us for some months to come. From a monetary policy perspective, the rising inflationary risks (fuel prices, demand pressures etc.), although still nascent, could trigger some caution from the RBI," said Sakshi Gupta, senior economist at HDFC Bank.

Price pressure building up from the manufactured product price, which in turn is driven by rise in commodity prices, is also responsible for the rise in inflation. "While low statistical base effect is partly responsible for this uptick, there are telltale signs of price pressures building up, notably through petro (petroluem) product prices bus and airfare segment," Kunal Kundu, economist at Societe Generale, opined.

Read | Retail inflation rises to 5.03% in February

"Also, despite weak business, recreation and amusement prices continue to move up as service providers' needs factor in rising costs to prepare for the pandemic-engendered new normal. If the underlying price pressure continues to remain elevated even when the base effect normalises, there is a high possibility of RBI opting for a rate hike sooner than we expect," Kundu added.

Agreeing that CPI reflects impact of higher fuel prices, Garima Kapoor of Elara Capital, Mumbai, said, "While the headline CPI numbers post March-2021 will begin to moderate amid base effect, core inflation is expected to remain firm amid higher commodity and especially crude prices. We expect global crude oil prices to remain elevated at least for another 4-5 months owing to the widening gap between global oil demand and supply. Given that the government is likely to overachieve its FY21 revenue target, a likely cut in excise duty may be on the cards."