Retail inflation accelerated to a three-month high of 5.03 per cent in February amid a spike in fuel and food prices, raising concerns of inflationary pressure adding to fragile economic growth.

Retail inflation rose to 5.03 per cent in February mainly on account of higher food prices, government data showed on Friday. The consumer price index (CPI) based retail inflation was at 4.06 per cent in January.
The rate of price rise in the food basket accelerated to 3.87 per cent in February against 1.89 per cent in the preceding month, according to data released by the National Statistical Office (NSO). Within the food items, the rate of fall in vegetables prices was at 6.27 per cent in February against 15.84 per cent in the previous month.

Inflation in the fuel and light category remained elevated at 3.53 per cent during the month vis-a-vis 3.87 per cent in January.

The main cause of this inflation is on the core inflation side with personal products, health, and recreation registering very high inflation rates. The higher fuel prices have been passed through as seen in the 11.4 per cent increase in the transport and communications segment. Higher transport costs have also affected food prices, which have increased 4.25 per cent.

“As far as personal products are concerned the higher inflation can be attributed to higher rates being charged by the industry post pandemic where several sectors have raised prices to cover for loss of sales in the first and second quarters,” Madan Sabnavis, chief economist, Care Ratings said.

Inflation will continue to be high in March where fuel prices have peaked. The base effect would also be getting further diluted. In this situation the MPC will definitely pause any rate action

"Inflation to remain sticky and unlikely to come lower than 4% before 3QFY22. With crude prices increasing, all eyes are on government’s taxation policy, which will have implications not only on inflation, but also on fiscal deficit and current account. In view of the growth inflation dynamics and the guidance given by the RBI, India Ratings and Research believes that the RBI will continue with its accommodative policy and keep the policy rates in a pause mode over the next 6-9 months," Sunil Kumar Sinha, Principal Economist, India Ratings and Research said.

The Reserve Bank mainly factors in the retail inflation while arriving at its monetary policy. This is the last set of retail inflation data before the Reserve Bank of India (RBI) and the finance ministry announce a fresh inflation targeting framework. The RBI has supported maintaining the existing inflation target of 4% within a band of 2 percentage points.

“The RBI’s inflation target is due to be re-issued by the government by the end of this month. The government is considering relaxing the framework, while the RBI appears to want to leave unchanged the current headline inflation target of 4%, with a “tolerance band” of 2-6%. Either way, the current rate of inflation should be within the tolerance band. Today’s CPI release will be the last before the next upcoming MPC meeting, which is scheduled to conclude on 7th April,” Darren Aw, Asia Economist, Capital Economics said.