Rising Inflationary Risks Could Trigger Caution From RBI, Say Experts On Retail Inflation Data

The retail inflation rose to 5.03 per cent in February from a year ago, government data released on Friday showed. Analysts in a Reuters poll had predicted an annual inflation of 4.83 per cent for the month. 
 

Kunal Kundu, India Economist, Societe Generale, Bengaluru

“While low statistical base effect is partly responsible for this uptick, there are telltale signs of price pressures building up, notably through petro (petroluem) product prices bus and airfare segment. 

Price pressure is also building up from manufactured product price (driven by a sharp rise in commodity prices) and house price channel. Continued stickiness of core inflation adds to the concern. 

Also, despite weak business, recreation and amusement prices continue to move up as service providers’ needs factor in rising costs to prepare for the pandemic-engendered new normal. If the underlying price pressure continues to remain elevated even when the base effect normalises, there is a high possibility of RBI opting for a rate hike sooner than we expect.” ​
 

Sakshi Gupta, Senior Economist, HDFC Bank, Gurugram

“Inflation inched higher in the month of February to 5% from 4.06% in January on the back of rising fuel prices and inflationary pressures in certain food items like onions, meat and eggs. As we had suspected, perhaps the low point for inflation is behind us for some months to come.

From a monetary policy perspective, the rising inflationary risks (fuel prices, demand pressures etc.), although still nascent, could trigger some caution from the RBI. 

That said, we continue to see the central bank keeping monetary policy accommodative and focus towards managing yields and supporting growth for now. We expect CPI to average at 5-5.5% in H1 FY22.”

​Garima Kapoor, Economist – Institutional Equities, Elara Capital, Mumbai

“Today’s CPI print clearly reflects the impact of higher fuel prices and lower sequential decline in food prices amid waning effect of seasonality. While the headline CPI numbers post March-2021 will begin to moderate amid base effect, core inflation is expected to remain firm amid higher commodity and especially crude prices. 

We expect  global crude oil prices to remain elevated  at least for another 4-5 months owing to the widening gap between global oil demand and supply. Given that the government is likely to overachieve its FY21 revenue target, a likely cut in excise duty may be on the cards.”