Food price increases, which make for roughly half of the Consumer Price Index (CPI) basket, are anticipated to have slowed last month. However, the majority of the delay was most likely caused by lower worldwide prices and the government’s attempts to offer greater wheat supplies.
According to a Reuters poll, retail inflation in India likely fell slightly last month but remained above the Reserve Bank of India‘s upper threshold for the second consecutive month, leaving the central bank on track for additional policy tightening.
Food price increases, which make for roughly half of the Consumer Price Index (CPI) basket, are anticipated to have slowed last month. However, the majority of the delay was most likely caused by lower worldwide prices and the government’s attempts to offer greater wheat supplies.
Notwithstanding these interim measures, reduced agricultural yields due to warmer-than-normal weather last year and this year were projected to keep inflation high in the short run.
According to a March 2-9 Reuters survey of 43 analysts, CPI inflation likely decreased to 6.35% in February from 6.52% in January.
No one expert predicted that inflation would fall below 6.00%, the highest limit of the RBI’s tolerance zone. Predictions ranged from 5.89% to 6.70% for the data, which is set to be revealed on March 13 at 1200 GMT.
“With vegetable prices normalizing, inflation has started to harden as the inherent price pressures have barely shown any meaningful signs of moderation. In fact, food inflation ex-pulses and vegetables has now reached a nine-and-a-half-year high,” wrote Kunal Kundu, India economist at Societe Generale.
“Although we do not anticipate a large rise in inflation in the next quarter, the rate of decrease would be much slower than predicted, especially given the potential impact of El Nino weather conditions on food prices. We cannot count out future upside inflation surprises.”
El Nino weather patterns typically result in below-average rainfall, reducing harvests and increasing food costs.
A lower currency, which lost approximately 10% last year and is anticipated to regain just a portion of that loss in the coming months, is also contributing to price increases.
Core inflation, which excludes volatile food and energy components, was predicted to stay stable as well.
“For the RBI, it’s a close call at its next meeting – we see the balance of risks between ‘hold’ and ‘hike’ as even. If next week’s news on inflation in February disappoints, the RBI could easily be swayed into another hike,” wrote Alexandra Hermann, lead economist at Oxford Economics.
