In March 2022, India’s retail inflation reached 6.95 percent, the highest rate in over a year and a half, and the third consecutive month above the Reserve Bank of India’s tolerance threshold of 6%.
Consumer food price inflation increased to 7.68 percent in March from 5.85 percent in February, pushing inflation to its highest level in 17 months. This was assisted by rising gasoline prices and companies passing on higher commodity prices and input costs to consumers across goods and services.
The rise in fuel prices, as well as its knock-on effects on transportation and logistics expenses, is likely to accelerate in April. Consumers in rural India experienced higher inflation than those in urban areas, with overall rural inflation climbing to 7.66 percent in March from 5.81 percent in February, and the rural food price index surging beyond 8% to 8.04 percent in March.
While food and beverage inflation increased to 7.47 percent in March, oils and fats inflation increased to 18.8 percent, and vegetable inflation increased to 11.6 percent, nearly doubling from February’s figure of 6.1 percent. Prices of meat and fish increased by 9.63 percent in March, compared to 7.4 percent in February. Inflation in clothing and footwear reached 9.4%, with footwear alone reaching nearly 11.3 percent.
“Our analysis shows that the poor are facing the brunt of inflation,” said Dharmakirti Joshi, chief economist at CRISIL. “Food, which accounts for the largest share of the poor’s consumption basket, has seen the sharpest increase.” Domestic prices of gasoline, diesel, and liquefied petroleum gas were only boosted in the second part of the month, he noted, lowering fuel inflation to 7.5 percent from 8.7 percent.
“In April, we should see the complete transmission of global fuel costs on domestic prices,” said Vivek Rathi, director of research at Knight Frank India. Inflation in transportation and communication reached 8%. Inflation rates for health care, household goods and services, and personal care and effects were 6.99 percent, 7.67 percent, and 8.71 percent, respectively.
West Bengal has highest Retail Inflation
West Bengal had the highest retail inflation rate at 8.85 percent, followed by Uttar Pradesh and Assam at 8.19 percent, Madhya Pradesh (7.89 percent), Telangana (7.66 percent), and Maharashtra (7.66 percent) (7.62 percent ). Several states, including Bihar, Jammu and Kashmir, Haryana, Jharkhand, and Rajasthan, had inflation rates ranging from 7.4% to 7.6%.
While economists expected retail inflation to rise in March, the rate is faster than projected and frightening, according to CARE Ratings chief economist Rajani Sinha, who emphasises that high inflation across various categories is’more worrying.’
“This reflects a build-up of price pressures in the economy due to persistent commodity price increases and amplified supply bottlenecks,” she said, adding that India’s high reliance on imported edible oils, fertilisers, and crude oil, all of which are at all-time high prices globally, makes the outlook for inflation to dissipate quickly quite uncertain. If retail inflation does not moderate much from current levels, ICRA chief economist Aditi Nayar believes the central bank would raise interest rates as soon as June.
“We now forecast rate hikes of 50-75 basis points (0.50 to 0.75 percentage points) by the end of the second quarter of this year, and probably another 0.50 percentage point hike in 2023-24,” she said, adding that government bond yields are expected to rise to 7.2 percent and possibly 7.5 percent.
The central bank increased its retail inflation predictions for 2022-23 from 4.5 percent to 5.7 percent last week. The Reserve Bank of India anticipates average inflation to reach 6.3 percent in the first quarter of this year, before easing to 5.8 percent in the July-September period.