Retail Inflation nears 7% as food prices pinch

India’s retail inflation rocketed to 6.95% in March 2022, the fastest rate of price increase in nearly a year and a half, marking the third straight month above the Reserve Bank of India’s 6% tolerance threshold.

A sharp rise in consumer food price inflation, which stood at 7.68% from 5.85% in February, propelled inflation to its highest level in 17 months, aided by fuel price hardening and producers experiencing higher commodity prices and input costs. passed on to consumers on goods and services.

The rise in fuel prices and their ripple effects on transportation and logistics costs are expected to pick up in April. Rural consumers in India experienced higher inflation than urban citizens, with total rural inflation increasing by 7.66% and the rural food price index rising more than 8% to 8.04% in March, from 5.81 % in February.

While food and beverage inflation reached 7.47% in March, oils and fats strengthened further to 18.8% and vegetable inflation rose to 11.6%, almost doubling from 6.1% in February. Meat and fish prices showed an inflation of 9.63%, compared to 7.4% in February. Inflation of clothing and footwear was 9.4%, while footwear alone reached almost 11.3%.

“Our analysis shows that the poor bear the brunt of inflation, as food – which takes up most of their consumption basket – showed the strongest increase,” said Dharmakirti Joshi, chief economist at CRISIL. Fuel inflation, he pointed out, declined to 7.5% from 8.7% as domestic prices of gasoline, diesel and liquefied petroleum gas only rose in the second half of the month.

“The full transfer of global fuel prices to domestic prices is expected to happen in April,” said Vivek Rathi, research director at Knight Frank India. Transport and communications inflation reached 8%. The cost of health care, household goods and services, as well as personal care and securities saw inflation rise to 6.99%, 7.67% and 8.71% respectively.

Of the United States, West Bengal registered the highest retail inflation rate at 8.85% while Uttar Pradesh and Assam clocked 8.19% inflation, followed by Madhya Pradesh (7.89%), Telangana (7.66%) , and Maharashtra (7.62%). Inflation was between 7.4% and 7.6% for various regions including Bihar, Jammu & Kashmir, Haryana, Jharkhand and Rajasthan.

While economists expected inflation to pick up in March, the pace of the rise is faster than our expectations and alarming, noted CARE Ratings chief economist Rajani Sinha, stressing that high inflation is “more troubling” across most categories.

“This reflects the build-up of price pressures in the economy due to continued increases in commodity prices and increased supply bottlenecks,” she said, adding that India’s heavy import dependence on edible oils, fertilizers and crude oil, which always have high prices, worldwide, makes the outlook quite uncertain that inflation will soon subside.

If retail inflation does not cool significantly from these levels, ICRA chief economist Aditi Nayar estimated the central bank could opt for rate hikes as early as June.

“We now expect 50-75 basis point (0.50 to 0.75 percentage point) rate hikes by the end of the second quarter of this year, and maybe another 0.50 percentage point increases in 2023-24,” she said, adding that Treasury yields are also expected to climb to 7.2% and possibly even reach 7.5%.

Last week, the central bank raised its inflation forecast for 2022-23 to 5.7%, from 4.5% previously projected. The RBI expects the first quarter of the year to record an average inflation rate of 6.3% before slowing down to 5.8% in the July-September quarter.

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