Retail inflation accelerated sharply in March to 6.95%, the fastest rise in nearly a year and a half, and marked the third consecutive month that inflation exceeded the Reserve Bank of India’s 6% tolerance level.
A surge in food price inflation, which accelerated to 7.68% from February’s 5.85%, combined with rising fuel prices and producers passing higher commodity prices and input costs for goods and services to consumers to push the headline consumer price index (CPI). raise inflationary pressures to a 17-month high.
Consumers in rural India faced higher levels of inflation than urban residents, with headline rural inflation up 154 basis points higher at 7.66% as the rural food price index rose 8% to 8.04% in March from 5.81% in February .
“Our analysis shows that the poor are bearing the burden of inflation most, as food — which makes up the largest share of their consumption basket — saw the largest increase,” said Dharmakirti Joshi, CRISIL’s chief economist.
The rise in fuel prices and its impact on transportation and logistics costs are likely to intensify in April, economists said.
“The full transmission of global fuel prices to domestic prices is expected to be seen in April,” said Vivek Rathi, Research Director at Knight Frank India. Transport and communications inflation, which reflects car fuel prices at the pump, hit 8%. Healthcare costs, household goods and services, and personal care and supplies saw price pressures escalate with inflation readings of 6.99%, 7.67%, and 8.71%, respectively.
While food and beverage inflation hit 7.47% in March, edible oils and fats inflation accelerated significantly to 18.8%, and vegetable inflation almost doubled to 11.6% from 6.1% in February . Meat and fish prices posted inflation of 9.63% versus 7.45% in February. Clothing and footwear inflation reached 9.4%, with footwear alone reaching nearly 11.3%.
Among the states, West Bengal recorded the highest retail inflation at 8.85%, while Uttar Pradesh and Assam both recorded 8.19% inflation, followed by Madhya Pradesh (7.89%), Telangana (7.66%) and Maharashtra ( 7.62%). The inflation rate ranged from 7.4% to 7.6% for several other provinces including Bihar, Jammu & Kashmir, Haryana, Jharkhand and Rajasthan.
While economists expected inflation to accelerate in March, the pace was faster than “our expectations and alarming,” noted Rajani Sinha, chief economist at CARE Ratings, stressing that the fact that high inflation has spread to most categories had, was “of greater concern”.
“This reflects the build-up of pricing pressures in the economy due to continued commodity price hikes and heightened supply shortages,” she said, adding that India’s high import dependency of cooking oils, fertilizers and crude oil at all-time high prices globally makes the prospects for inflation easing anytime soon quite uncertain .
Unless retail inflation cools significantly from these levels, ICRA chief economist Aditi Nayar reckons the central bank could hike rates as early as June.
“We now expect rate hikes of 50 to 75 basis points (0.50 to 0.75 percentage point) by the end of the second quarter of this year and perhaps another 0.50 percentage point hike in 2023-24,” she said, adding Add Government bond yields should also rise to 7.2% and could even reach 7.5%.
Last week, the central bank raised its inflation forecast for 2022-23 to 5.7% from a previously forecast 4.5%. The RBI expects inflation to average 6.3% for the first quarter of the year before slowing to 5.8% in the July-September quarter.
