NEW DELHI: India’s headline inflation remained almost flat at 5.09% in February, compared with 5.1% in the previous month, prompting experts to believe that the Reserve Bank of India will hold interest rates steady at its next policy meeting in early April.
“…three successive quarters of 8% plus GDP expansion, and the CPI print of 5.1% for February 2024, suggest status quo on the rates and stance in April 2024,” said Aditi Nayar, chief economist, Icra.
The Monetary Policy Committee’s meeting is scheduled for April 3-5. The MPC held rates for the sixth consecutive time at its meeting last month.
While headline inflation will likely dip further in the coming months, experts indicate higher food inflation could keep overall inflation from declining significantly. “Inflation is purely a food inflation-driven phenomenon, which will continue to pressurise inflation in the coming months,” said Madan Sabnavis, chief economist, Bank of Baroda.
Sequentially, prices in the retail basket were up 0.16% in February, owing to a 0.11% rise in food inflation. Some economists predict that given the surprise on the growth front, RBI may keep the hold on interest rate further than earlier anticipated.
“Unless growth posits a negative surprise in the intervening months, we now see a dimmer possibility of the stance being changed in the June or August 2024 MPC reviews,” said Nayar.
Food inflation inched up further in February, reaching 8.7% from 8.3% in the previous month, as vegetable inflation rose to a seven-month high of 30.2% from 27.1% earlier.
“The pressure from vegetables is broad-based. Inflation in ‘TOP’ (tomato, onion, potato) darted up to 22.7% from 18.1% in January, while the non-TOP category inflation rose to 34% from 32.2%,” said DK Joshi, chief economist, Crisil.
While pulse inflation eased to 18.9% in February from 19.5% in the previous month, it continued to exhibit double-digit growth for the ninth consecutive month.
“The ongoing high inflation in specific food categories, including cereals, pulses, spices, vegetables pose a risk of potentially broadening price pressures and de-anchoring inflationary expectations,” said Rajani Sinha, chief economist, CareEdge.
On the other hand, oils and fats, which declined 14% in February, provided some relief. Core inflation also eased to 3.4% in February, from 3.6% in the previous month. “The moderation in core is spread across goods and services. Housing inflation remains weaker than usual seasonal momentum, though the divergence has reduced,” said Gaura Sengupta, economist, IDFC First Bank.
Economists note that FMCG companies announcing an increase in retail prices may have some impact on core inflation.
Rural inflation continued to be higher than urban for the seventh consecutive month, as rural areas have a greater weightage of food in the index.
Four major states continued to exhibit more than 6% inflation in February, with Odisha recording the highest print at 7.6%.
Source: The Economic Times