With cereals and product inflation staying in double digits for six consecutive months, headline retail inflation based on the Consumer Price Index (CPI) remained above 6 per cent for the second straight month. With this, the possibility of another round of policy interest rate hike in April has gained further strength.

Although the retail inflation in February came in at 6.44 per cent, a tad lower than the 6.52 per cent in January, the core inflation in excess of 6 per cent for the past four months is set to cause a bigger problem for the Monetary Policy Committee, when it meets early next month.

Vegetable prices down

The retail inflation rate for the food basket worked out to be 5.95 per cent last month, marginally lower than 6 per cent in January. It was 5.85 per cent in February last year. As per the data, vegetable prices dipped 11.61 per cent on an annual basis, though it recorded a double-digit increase in spices (20.20 per cent) and cereals and products (16.73 per cent). A decline in inflation was also witnessed in the oils and fats segment.

The price rise remained subdued in segments like meat and fish, eggs, pulses and products, sugar and confectionery and non-alcoholic beverages. On the other hand, the inflation in the fuel and light segment worked out to be 9.90 per cent in February. Also milk and products, clothing and footwear became dearer during the month.

In a note, Paras Jasrai (analyst) and Sunil Kumar Sinha (principal economist) with India Ratings & Research, said the government’s decision to sell 50 lakh tonnes of wheat in open market and to reduce the reserve price to ₹2,150/quintal from ₹2,350/quintal, have started showing results. The daily average retail price of wheat, on March 10, declined to ₹30.03/kg from ₹33.53/kg on February 10. However, sticky core inflation and the onset of summer may push up perishable products prices higher.

Rate hike?

“India Ratings believes the odds are more in favour of another 25 bps repo rate hike in April. It expects the March retail inflation to be 5.7 per cent leading to Q4 FY23 retail inflation to be higher than 6 per cent,” the note said.

Aditi Nayar, Chief Economist with ICRA, also sees the March inflation coming down below 6 per cent. “Given two consecutive CPI inflation points above 6 per cent, the MPC may go in for another rate hike, although the decision is likely to be non-unanimous based on the minutes of the last review. Moreover, global developments over the next three weeks could impact the MPC’s decision,” she said.