New Delhi: India’s retail inflation, as measured by the Consumer Price Index (CPI), was 6.95% in March, the third straight month when the retail inflation was above the Reserve Bank’s mandate which is to keep it below six per cent. The Consumer Price based inflation in March is at a 17 month high. Most of the commodity groups were at a record level in the last more than a year. For instance, cereals and products were at a high of 19 months in March this year. Similarly, milk products and vegetables were also at a high of 16 months.
Some other items touched even higher record levels in March. For example, clothing items were at their highest levels in the last 100 months, footwear touched the high of last 111 months, and household goods and services touched the record high of 102 months. While personal care items were at a high of 13 months and the food index was at its highest in the last 16 months.
Health inflation is a cause of concern
Sunil Sinha, Principal Economist at India Ratings and Research, says his agency has been pointing out that the health and household goods and services inflation is turning structural because in the last 15 months health inflation has been in excess of 6% and household goods and services inflation was in excess of 5% in the last 10 months.
Structural inflation means that the inflation has acquired a certain degree of permanency and rigidity as against its seasonal nature which is witnessed in food items, particularly the price rise witnessed in vegetables and fruits which cools down with the arrival of new crops. Sinha says with the increase in the cost of essential medicines from April this year, health inflation is likely to exert further pressure on the retail inflation.
The retail inflation in the fourth quarter (Jan-March 2022 period) breached the 6% mark after a gap of four quarters as it was 6.34% during this period. Annual inflation in the last financial year (April-March 2021) was 5.5%. Annual inflation for the FY 2020-21 period was at an even higher level at 6.2%.
Annual inflation on the face of it portrays the complete picture. Monthly inflation declined to 4.35% in September 2021 from 6.30% in May 2021, however, since October 2021, it has been rising consistently. Core inflation too jumped to 10 month high at 6.29% in March this year. It was 5.96% in February and it was 6.0% in March last year.
Petrol-Diesel price hike to further push inflation
"Gradual fuel price increase from end-March 2022 had limited impact on March 2022 inflation. But going forward, structural health inflation, higher commodity prices and weak currency will keep inflation rate elevated at least in the first quarter of FY23 (April-June 2022 period)," Sinha said in a statement sent to ETV Bharat.
Sinha says his agency believes that the monetary policy announced in the last week has sown the seeds for the first liquidity normalisation and thereafter policy stance and policy rates. "We expect a 50 basis points hike in policy rates in FY23. However, time of rate hike will be data-dependent," Sinha noted.
