CPI inflation rises for the fifth successive month

Inflation based on the Consumer Price Index (CPI), or retail inflation, rose to 6.1% on-year in February compared with 6.0% in January and 5.0% a year ago. This marks the fifth consecutive month of rising inflation, and the second month of it staying above the Reserve Bank of India’s (RBI) upper target of 6%. Food has been driving the rise, as benefit from a favourable base is wearing off. Core¹ retail inflation remains sticky around 6% mark, while fuel² inflation softened as domestic fuel prices did not change.

The Russia-Ukraine crisis has amplified the cost pressures and supply disruptions across the world. For India, the impact will be predominantly felt through high crude oil price. While a cut in excise duties on petrol and diesel can offset some impact, that will not be sufficient if crude stays above $90 per barrel next fiscal. Core inflation is further expected to face pressure from companies passing on costs to retail prices to a greater extent next fiscal. Food inflation is likely to remain benign on account of normal monsoon, though rising fertiliser costs and international food prices could add some upside. Due to these factors, we expect CPI inflation to average 5.4% next fiscal compared with an expected 5.5% this fiscal. The estimate assumes average Brent crude at $85-90 per barrel next fiscal.

Inflation trends in February: highlights

• CPI inflation rose to 6.1% on-year in February from 6.0% previous month and 5.0% a year ago
  
• Food inflation rose to 5.9% from 5.4% previous month and 3.9% a year ago
  
• Fuel inflation moderated to 8.7% from 9.3% previous month and 3.5% a year ago
  
• Core CPI inflation was slightly lower at 5.8% compared with 6% seen previous month and also a year ago. Within core, goods inflation averaged 6.3% and services averaged 5.1%
  
• Rural CPI inflation rose to 6.4% in February from 6.1% previous month. Urban CPI inflation moderated to 5.8% from 5.9% previous month
  
• Inflation based on wholesale price index (WPI) rose to 13.1% in February from 13.0% previous month and 4.8% a year ago
  

¹ CPI excluding food and beverages and fuel and light
² CPI fuel and light