Retail inflation rises to 10-month high of 3.21% in February

New Delhi: India’s retail inflation rose to a 10-month high of 3.21% in February from 2.74% in the previous month led by an uptick in prices of food, beverages and precious metals, official data showed on Thursday.

Food inflation rose to 3.47% in February from 2.13% in January, as per data released by the Ministry of Statistics & Programme Implementation.

This is the second edition of retail inflation data based on the new Consumer Price Index (CPI) series with base year 2024. Last month, the ministry released the new CPI series data replacing the 2012-based index. It had pegged the January inflation at 2.75%. January data has been revised down slightly to 2.74%.

In February the CPI-based retail inflation increased by 47 basis points when compared with the previous month.

“The uptick was almost entirely led by the food and beverages (F&B) segment, which accounted for as much as 44 bps of the 47 bps rise in the headline print between these months,” said Aditi Nayar, Chief Economist, ICRA.

Core inflation (CPI excluding volatile food and energy sectors) remained unchanged at 3.4%. Excluding precious metals, core inflation stood significantly lower at 2%, indicating broadly contained underlying price pressures.

Tobacco and intoxicants category also witnessed an uptick in inflation, driven by a sharp increase in excise duty on tobacco products.

There was a sharper increase in inflationary pressure in rural areas when compared with the urban areas. Rural inflation jumped 2.73% in January to 3.37% in February while for urban areas it rose from 2.75% to 3.02%.

Vivek Rathi, National Director-Research at Knight Frank India, said the statistical adjustments under the new CPI series have also contributed to the jump in inflation.

“The revision of the CPI base year and the reduced weight of the food basket have altered the composition of the headline print. Meanwhile, firm price pressures in non-food and fuel categories, alongside rising precious metal prices, have contributed to inflation,” said Rathi.

Telangana recorded the highest retail inflation (5.02%) followed by Rajasthan (3.53%); Kerala (3.50%); Andhra Pradesh (3.45%) and West Bengal (3.44%). Kerala recorded the highest food inflation at 6.17%. Food inflation in West Bengal stood at 5.54% during the month under review.

Inflation pressure is likely to rise further in the coming months due to West Asia conflict that has led to disruptions in global supply networks.

“Going forward, rising crude oil prices amid the West Asia crisis pose an upside risk to retail inflation,” said Rajani Sinha, Chief Economist, CareEdge Ratings.

“Oil marketing companies are expected to absorb crude prices of up to around $90/bbl over the medium term. However, if disruptions persist and crude prices remain above $90 per barrel, OMCs may pass on part of the higher costs to consumers,” Sinha said.

If average annual crude oil prices remain elevated at $100/bbl or higher, CPI inflation could rise above 5% in FY27. This is against our base case projection of 4.3% for FY27, prior to the war situation, she added.

Despite the uptick the headline inflation is likely to remain within the Reserve Bank of India’s policy tolerance band, said Rathi. “In the near term the RBI is likely to maintain a cautious, data-dependent stance while using liquidity and forex tools to manage volatility,” he added.

“We expect RBI to maintain a status quo on rates for now as they assess the longevity and the impact of the crisis. Meanwhile we expect RBI to continue to keep liquidity conditions comfortable to ensure financial conditions remain benign to avert any crunch,” said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.