Rising 5.03 per cent last month, the retail inflation — or the rate of increase in the prices that consumers pay for a group of items, accelerated to a three-month high in February 2021, due to higher fuel prices, which is likely to challenge the Reserve Bank of India’s (RBI) accommodative stance. The central bank adopted record low key policy rates to boost the pandemic-hit economy. The retail inflation rate registered last month was higher than estimates of a recent poll conducted by news agency Reuters. In the poll, more than 50 economists estimated that retail inflation rose 4.83 per cent in February, jumping from 4.06 per cent in January. (Also Read: Retail Inflation Rises To 5.03% In February Amid Rise In Food, Fuel Prices )
Retail inflation was also driven by rising food prices or food inflation. The retail food prices which comprise nearly half of the country’s inflation basket, increased 3.87 per cent in February, compared to 1.96 per cent in January. The government does not release official core inflation data.
Additionally, the core inflation, excluding food and fuel costs, was estimated in the range of 5.61 per cent-5.9 per cent for the month by four economists, compared to 5.5 per cent-5.7 per cent in January 2021. The central bank tracks the consumer inflation data primarily for formulating its monetary policy.
The retail petrol prices in the national capital have gone up by almost nine per cent so far this year, while diesel prices are up over 10 per cent amid rising global crude oil prices. The RBI’s Monetary Policy Committee (MPC), which unanimously decided to keep the benchmark repo rate unchanged at four per cent last month, is expected to keep the rates steady at its next meeting in April. After slashing the repo rate by 115 basis points to sustain the economy amid the COVID-19 pandemic, the central bank has kept the policy rate unchanged since May 2020.
According to analysts, the high commodity prices will continue to affect inflation in the next few months. The economy is projected to contract eight per cent in the current financial year ending in March before growing at around 11 per cent next financial year.
‘It is a worry on both front, CPI after staying at four per cent level for two months has risen to over five per cent in the month of February. The rise in inflation is on account of elevated food, vegetable prices, core inflation at 5.88 per cent is a concern. The rising crude price and its impact on retail fuel prices are a risk to inflation going forward,” said Nish Bhatt, Founder and CEO, Millwood Kane International.