A surge was expected due to an unfavourable base effect from last year. But January’s 6.52% rise on an annual basis as against 5.72 per cent in December last year — much higher than expected — has been partly fuelled by rising food prices, which account for nearly 40 per cent of the Consumer Price Index (CPI) basket.
The RBI is expected to keep inflation within a band of 2-6 per cent. It has been raising lending rates to control inflation. Last week, the RBI delivered a quarter-percentage-point hike in the policy repo rate.
Inflation rate for vegetables contracted by 11.70 per cent against a contraction of 15.08 per cent in the previous month. Meanwhile, inflation rate for fuel and light declined marginally to 10.84 per cent from 10.97 per cent in the preceding month.
Higher inflation has been a concern for central banks across the world, including India, as the uncertain nature of the Russia-Ukraine war compounded supply-side disruptions in the post-pandemic world that was barely going through a nascent recovery from economic shocks.
The RBI had cut India’s inflation forecast for this fiscal year as the worst of price pressures were seen to be behind, but Governor Shaktikanta Das had flagged stickiness of the core inflation to be a matter of concern during its Monetary Policy Committee meeting on February 8.
The RBI has forecast retail inflation for FY23 at 6.5 per cent and for Q4 at 5.7 per cent. Retail inflation for FY24 has been forecast at 5.3 per cent with Q1 at 5 per cent, Q2 at 5.4 per cent, Q3 at 5.4 per cent and Q4 at 5.6 per centAs per an RBI survey conducted in January, respondents expected higher price pressures for household durables and cost of housing over the next three months as compared to the previous survey round. Among consumption categories, the highest rise was expected in the food group.
Since May last year, the RBI has increased the short-term lending rate by 225 basis points to contain inflation.