CPI inflation jumps with a sharp rise in food inflation

Inflation based on the Consumer Price Index (CPI), or retail inflation, rose to 7% on-year in March compared with 6.1% in February, and 5.5% in March 2021. This is the highest since October 2020, and 100 basis points (bps) above the Reserve Bank of India’s (RBI’s) upper band of tolerance set at 6%. Food inflation — the most volatile component of CPI — increased sharply, along with core¹ inflation. Fuel² inflation moderated despite surging international energy prices, as domestic prices were kept unchanged for majority of the month.

With this, CPI inflation averaged 5.5% in fiscal 2022, compared with 6.2% in the previous year.

Pressure on retail inflation is rising and becoming broad-based, driven by protracted supply shocks. Food inflation – which had helped contain headline CPI inflation in fiscal 2022 – faces upside risks in fiscal 2023 from surging international food prices and input costs. Fuel inflation is expected to rise further if international crude prices remain above $100/barrel. A wide-ranging surge in international prices across energy, agriculture, and metal commodities post the Russia-Ukraine conflict has brought more cost pain for producers, which we expect to be passed on to consumers to a greater extent this fiscal. This will raise core inflation further.

Inflation trends in March: Highlights

• CPI inflation rose to 7.0% in March from 6.1% in the previous month and 5.5% in March 2021
• Food inflation climbed to 7.7% from 5.9% in February and 4.9% a year ago
• Fuel inflation moderated to 7.5% from 8.7% in February and 4.4% a year ago
• Core CPI inflation increased to 6.4% from 5.8% in the previous month and 5.9% a year ago.
• Within core, goods inflation³ was higher at 7.4% compared with 5.2% in services in the month
• Rural CPI inflation was higher at 7.7% in March versus 6.1% in urban areas

¹ CPI excluding food and beverages and fuel and light
² Refers to fuel and light CPI
³ Excluding petrol and diesel