India’s retail inflation shot back up to 6.52% in January after a two-month streak below the 6% mark, with consumer food prices hardening again to 5.94% from 4.2% in December 2022 amid a broad-based pick-up in price trends across goods and services.
Rural inflation, which has outstripped urban inflation in recent months, firmed up from 6.05% in December to 6.85% in January, while urban consumers faced retail price rise of 6% in January, compared to 5.4% in December.
There were no base effects at play as January 2022 had recorded 6.01% retail inflation, the beginning of a ten-month streak over the 6% upper tolerance threshold set for the Reserve Bank of India (RBI) that included a eight-year high inflation of 7.8% last April and culminated in October at 6.77%.
The higher than expected rebound in January’s price rise may persist for a couple of more months, economists reckoned, and may compel the central bank to consider yet another rate hike at its next monetary policy review. The RBI had projected an average 5.7% pace of price rise for this quarter that now looks difficult to attain unless there’s a significant mellowing down in prices over February and March.
Vegetables which had reported a 15.1% fall in prices in December 2022, continued to be in deflationary territory falling 11.7% in January 2023, but most other food items continued to witness spiralling prices.
Cereals inflation surged from 13.8% in December to 16.1%, milk products accelerated from 8.5% in the previous month to 8.8%, and spices jumped from 20.3% inflation to 21.1% in January. Inflation in eggs sped from 6.9% in December to 8.8% in January, while the pace of price rise in meat and fish rose from 5.1% to 6.04%.
Personal care and effects saw a sharp rise in inflation to 9.6% in January from 8.1% a month earlier, and healthcare inflation accelerated from 6.1% in December 2022 to 6.4% in January.
Clothing and footwear inflation cooled slightly from 9.6% to 9.1%, but footwear price rise remained steep at 10.5%. Fuel and light inflation eased marginally from 11% in December to 10.85%, as did transport and communication (from 4.9% to 4.5%).
Fruits, Sugar and confectionary products, pulses, non-alcoholic beverages and prepared meals and snacks, all recorded an uptick in inflation rates month-on-month. “The contribution of food inflation to overall inflation rose to 44% in January from 37% in December,” noted CARE Ratings chief economist Rajani Sinha.
Among the major States, Telangana recorded the highest inflation in January at 8.6%, followed by Andhra Pradesh (8.25%), Madhya Pradesh (8.13%), Uttar Pradesh (7.45%) and Haryana (7.05%)
“Inflation remains fairly generalized across most categories as companies are still passing on higher input costs to consumers and this will continue through this quarter,” said Madan Sabnavis, chief economist at Bank of Baroda.
With core inflation (excluding food and energy prices) staying sticky as highlighted by RBI governor Shaktikanta Das in this month’s monetary policy review, Mr. Sabnavis said inflation will likely remain elevated in the next two months too, though the headline number may moderate.
“There is some scope for the government to consider action on the taxes front, especially fuel - both centre and states to cool down inflation,” he averred, adding that the central bank may consider further rate hikes after this month’s moderate 25 basis points (bps) interest rate raise. One basis point equals 0.01 percentage point.
Rating firm ICRA expects inflation to soften a tad to 6.3% in February from January’s three-month high pace that it said was driven by “an unexpectedly acute jump” in food inflation. However, the firm has revised its forecast for the January to March quarter average inflation to 6.2% from 6% earlier, said its chief economist Aditi Nayar.
“We expect the core inflation to remain elevated in February-March 2023 given the ongoing pass-through of higher input costs by producers, amidst robust demand for services,” she said, adding that food prices may cool off a bit.