Retain Inflation in February remains almost unchanged at 5.09%

By: Team India Tracker

Consumer price index is used in calculating the retail inflation in the economy by tracking the changes in prices of most commonly used goods and services.

According to the data released by the Ministry of Statistics and Programme Implementation, India’s retail inflation almost remain unchanged in the month of February as compared to January when it was 5.1 percent. The Consumer Price Index or the retail inflation in the country was recorded at 5.09 percent in February 2024. The urban inflation dropped to 4.78 percent in February from 4.92 percent in January 2024. In February 2023, inflation was a notch higher than the upper tolerance band, at 6.44 percent. Inflation stood at 5.5 percent in November 2023, up from 4.87 percent in October and 5.02 percent in September. Talking about the rural inflation, it remained unchanged in February at 5.34 percent. Consumer price index is used in calculating the retail inflation in the economy by tracking the changes in prices of most commonly used goods and services. This means that higher the CPI, higher the inflation which occurs due to the rise in prices of goods and services.

Coming over to the food inflation, it went up from 8.30 percent in January to 8.66 percent in February 2024. The inflation in food prices also went up in both- urban as well as rural areas. The urban food inflation increased from 9.02 percent in January to 9.19 percent in February. Similarly, the food inflation in rural areas shot up to 8.21 percent in February from 7.91 percent in January 2024.

Following its meeting in December, the Monetary Policy Committee (MPC) of the Reserve Bank of India unanimously agreed to maintain the repo rate at 6.5 percent. The MPC maintained the policy stance of 'withdrawal of accommodation' by the majority of 5 out of 6 members. The MPC has opted to keep the repo rate at its current level at its fifth meeting. In February 2023, the MPC last increased this rate by 25 basis points, to 6.50 percent. 5 out 6 MPC members voted in favour of withdrawal of accommodation. The RBI in its latest meeting in February 2024 remained firm on its stance of not altering the repo rate and maintained it unchanged in 6.5 percent.

In an attempt to slow down the rising inflation, which fell to a four-month low of 4.87 percent in October, the RBI has increased the repo rate by a total of 250 basis points (bps) since May 2022. However, it is anticipated that the rate would stay over the 4 percent medium-term objective for some time.

Source: Ministry of Statistics and Programme Implementation

The persistently high inflation in several food categories, such as cereals, pulses, spices, and vegetables, raises the possibility of expanding pricing pressures and de-anchoring inflationary expectations, according to Rajani Sinha, chief economist at CareEdge Ratings. “Having said that, the outlook for food inflation has improved over the past couple of months, attributed to a marginally increased overall acreage in rabi sowing compared to the previous year,” she said.

A number of factors combined to keep the headline inflation rate in February at the same level as it was in January. Some essential food items showed a decrease in their month-over-month (MoM) prices in February compared to January, while the prices of others increased.

Meat and fish prices (2.3 percent) and wheat prices (0.5 percent higher MoM) were both rising. Conversely, the main decliners were edible oils (down 0.6 percent), eggs (down 1.2 percent), and spices (down 1.9 percent MoM).

Vegetable prices remained relatively stable in February, with their index slightly declining by 0.1 percent from January. Overall, the Consumer Food Price Index increased by 0.1 percent month over month. Food inflation, a gauge of changes in the price index from year to year, increased to 8.66 percent from 8.30 percent.

The government has mandated the Reserve Bank of India to maintain the retail inflation at 4 percent with a margin of 2 percent on either side for a five-year period ending March 2026. The CPI is heavily weighted by the RBI while formulating its bi-monthly monetary policy. The repo rate was recently increased on February 08, 2023 by the Monetary Policy Committee (MPC) by 25 basis points (bps), bringing it to 6.50 percent. The MPC had increased the benchmark interest rate by 250 basis points in the fiscal year 2022-23 in an effort to control the raging inflation. The RBI increases the repo rate as a measure of tight monetary policy to counter inflation. Repo rate is the interest rate at which the central bank of a country lends money to commercial banks. In the event of inflation, central banks increase repo rate as this restricts the commercial banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in reducing inflation.

In February, retail inflation was recorded in 12 out of 22 states, which was more than the 5.09 percent average for all of India. States like Andhra Pradesh, Assam, Gujarat, Haryana, Jharkhand, Karnataka, Odisha, and Rajasthan have retail inflation rates greater than the national average, according to government data that was made public on Tuesday.

Aditi Nayar, Chief Economist at ICRA, commented on the CPI statistics and stated that, with the exception of food and beverages, all other subgroups had a decrease in inflation in February 2024, suggesting that the momentum in non-food goods continued to track a welcome reduction. She said, "In an encouraging trend, the core-CPI (CPI excluding food and beverages, fuel and light and petrol and diesel for vehicles) eased to 3.5 percent in February 2024 from 3.7 percent in January 2024, which is the lowest reading for this metric based on the available data since Jan 2015.”

"The moderation in core inflation continues to provide respite," said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank. "We retain our view that RBI will remain cautious on volatile food inflation trajectory and hence prefer to remain in pause mode on rates till August policy. However, with RBI already having continuously fine tuning liquidity and easing overnight rates closer to repo rate, we see room for a shift in stance in the June policy," she added.