The descent of India’s retail inflation to a ten-month nadir in March, clocking in at 4.85% down from February’s 5.1%, has offered a glimpse into the complex dynamics of the nation’s economy, even as food prices stubbornly cling to elevated levels. The persistence of food inflation is evident with a slight drop to 8.52% compared to 8.66% in the preceding month, despite the general slow-down. This stubbornness is primarily due to rising prices in certain commodities like cereals and meat, overshadowing the marginal decreases in vegetable, pulses, spices, and egg prices, all of which continue to experience double-digit inflation rates.
The urban population witnessed a significant alleviation in inflation, which decreased from 4.8% in February to a comforting 4.14% in March. In contrast, the rural populace endured a slightly intensified inflation rate at 5.45% compared to 5.34% during the same period, emphasizing a rural-urban divide when it comes to the cost of living.
Analysing the granularities, the hike in food prices took a sharper climb in rural areas from 8.3% to an 8.6% inflation rate in March, whereas urban food inflation presented a relatively better picture, sliding from 9.2% to 8.35%.
The Consumer Price Index remained unchanged on a month-to-month basis, but food prices inched forward by approximately 0.2%. Economists caution that the ongoing heatwaves across the country may contribute to further spikes in food inflation in the coming months, hinting at a potential escalation in the cost of living. External factors such as firming crude oil prices and an inflationary pulse in the United States threaten to postpone any prospective interest rate cuts by the Federal Reserve, which could have a spillover effect influencing interest rate decisions by the Reserve Bank of India (RBI).
Although March’s inflation rates hover above the RBI’s 4% target, the average retail inflation in the last quarter of 2023-24 stood at 5.01%, aligning with the central bank’s projection. The RBI, which recently highlighted inflation as a formidable ‘elephant in the room,’ forecasts a more amenable average retail inflation of 4.5% for the current year, a slight dip from the 5.4% recorded in the previous fiscal year. Nonetheless, the April to June quarter is anticipated to bear witness to an average inflation rate of 4.9%.
Within the food basket, a slight reprieve was visible as vegetable inflation cooled down from a staggering seven-month high of 30.25% to 28.3%, alongside a moderate decrease in the inflation of pulses (from 18.5% to 17.7%), eggs, and sugar. However, the cereals sector saw a noteworthy increase to an 8.4% inflation rate, up from 7.6%, and meat and fish registered a hike to 6.4% from 5.2%. The inflation rate for spices though moderated, remained in the double digits at 11.4%.
These persistent high food prices are seen as a pressing concern, with the ongoing heat wave posing a significant risk that could potentially derail the delicate balance of the food industry in the near term. Recently announced price hikes by fast-moving consumer goods firms compound the inflationary pressure and deserve close monitoring.
Even with slight ease in inflation in certain sectors such as household goods, services, health, and education, there has been an upsurge in personal care and effects prices, which have clocked in at over 6% in March, up from the 5.2% observed the month before.
Experts and economists, with a keen eye on core inflation dynamics, express caution regarding the coming months which may see food inflation remain elevated and volatile. The possibility of interest rate cuts is not expected until the latter part of the fiscal year, contingent on factors such as monsoon performance, crude oil price trends, and the US Fed’s monetary policy adjustments.
The rating agency ICRA projects that food and beverages inflation, which stood at 7.8% in March, will sustain over the 7% mark in April as well. Concerns regarding the exacerbating heatwaves may worsen the uptick in perishable prices. The importance of a favorable monsoon thus becomes increasingly crucial to keep food inflation in check and to anchor overall inflationary expectations. The economic pulse of the nation largely depends on the interplay of these natural and fiscal dynamics as it forges ahead.
