Consumers should brace for more price pressures in coming months as retail inflation becomes more broad based and the continuing impact of the Russia-Ukraine war.

Retail inflation climbed to a 17-month high in March to 6.95 per cent led by costlier food items. Consumer food price inflation rose to 7.68 per cent in March as against 5.85 per cent in February.

The food and beverages basket accounts for nearly half the CPI with a weightage of 45.9 per cent. Of particular concern in this was the inflation in three items – oil, vegetables and meat and fish. While CPI inflation in oils and fats was 18.79 per cent in March, vegetables (11.64 per cent), meat and fish (9.63 per cent) and spices (8.5 per cent) also witnessed price increases.

Steady rise

In India, retail inflation has been on a steady rise since September 2021 when it was at 4.35 per cent. But at that time, consumer food price inflation was at a mere 0.68 per cent.

A recent report by the World Bank noted that driven by rising global energy prices since the second half of 2021, inflation rates in most energy-related goods (for example, fuel for utilities, transport) are much higher than the headline inflation in Bangladesh, India, Nepal, and Pakistan for the months from November 2021 to January 2022.

“The war in Ukraine has raised commodity prices even higher, further contributing to inflationary pressures on energy and food,” it further said.

The concern, however, is that inflation is now turning broad based with prices rising across the spectrum due to pressures from the ongoing war.

Core inflation, excluding food and fuel, too has risen to over 6.5 per cent in March from 6.5 per cent in February, according to Emkay Global Financial Services.

The sharpest rise was seen in categories such as personal care and effects (8.71 per cent), clothing and footwear (9.4 per cent).

War impact

Almost all countries are reeling from higher food, commodity and crude oil prices due to the war and have reported record spikes in inflation.

“International prices of food, oil and metal are trading at significantly elevated levels with pass through to retail consumers currently ongoing. Broad basing of inflation in almost all items is a cause of concern,” said a report by ICICI Securities.

Unless crude oil prices fall significantly along with other commodity prices, inflation is unlikely to come down below 6 per cent levels for the next two quarters, it further said.

Fuel, which has a weight of 6.8 per cent in the CPI basket, recorded retail inflation at 7.52 per cent in March.

Dharmakirti Joshi, Chief Economist, Crisil Ltd, said the agency expects every $10 per barrel rise in crude price can raise headline CPI inflation by 40 basis points.

Fuel prices are expected to face pressure from surging international energy prices and delayed pass through from last fiscal, he further said.

Core inflation is expected to see a broad-based rise as producers pass on cost pressures across segments.

“The upside risks on food have risen after the Russia-Ukraine war,” he noted.

With demand remaining strong, most firms are expected to pass through the cost price pressures, at least partially to consumers.