In the constantly fluctuating economic landscape of India, the retail inflation rate saw a decline in March, hitting a ten-month low at 4.85% down from 5.1% in February. Despite this downward trend in the overall inflation, the cost of food remained stubbornly high, with the food inflation rate seeing very little shift from the previous month’s 8.66%, standing now at 8.52%. This persistent food inflation is driven by an increase in prices of cereals and meat, overshadowing the slight moderation in prices of vegetables, pulses, spices, and eggs, which however remained subject to double-digit inflation rates.
Urban consumers experienced a more pronounced dip in inflation, from 4.8% in February to 4.14% in March. In stark contrast, the rural populace found themselves bearing the brunt of a tougher financial squeeze as their inflation rate rose to 5.45% in March from 5.34% in February. The disparity was also evident in food costs, where urban India saw a decline in food inflation from 9.2% to 8.35%, whereas rural parts saw an increase from 8.3% to 8.6%.
Though the Consumer Price Index did not fluctuate on a monthly comparison, a slight rise by about 0.2% was observed in the food price index. Economists are apprehensive about the impact of the relentless heat wave, which could potentially exacerbate food inflation in the months ahead. Crude oil prices have been exhibiting an upward trend and with inflationary pressures mounting in the U.S., the anticipation of interest rate cuts from the Federal Reserve waning; this could cast a shadow on the prospect of similar actions from the Reserve Bank of India (RBI).
Although March’s inflation rate hasn’t quite reached RBI’s target of 4%, the average retail price rise over the last quarter of the fiscal year 2023-24 hovered around 5.01%, closely mirroring the RBI’s projection of an average 5%. The central bank, which recently referred to inflation as the “elephant in the room,” remains hopeful of guiding this elephant back to the forest, with inflation projections setting down to an average of 4.5% for this year from a previous 5.4%.
There was a marginal reprieve in terms of vegetable inflation, which saw a slight decrease from February’s seven-month peak of 30.25% to 28.3% in March. This trend of easing prices was also seen for pulses, eggs, and sugar. Conversely, cereal prices climbed to 8.4% in March from 7.6% the previous month. Meat and fish prices escalated to 6.4% from 5.2%, while inflation rates for spices continued to remain in double digits, despite cooling off to 11.4% from 13.5%.
Market experts have observed that the pressure on food prices remains unwavering, with cereals, vegetables, spices, and pulses continuing on a high inflation trajectory. Madan Sabnavis, the chief economist at Bank of Baroda, pointed out that the present heat wave is an added concern, foreshadowing the possibility of even higher food prices. Moreover, recent price hikes by consumer goods companies add to the plethora of factors that deserve constant monitoring.
Easing, although slightly, was noted in the inflation rates of household goods and services, and in health and education sectors. Yet, personal care and related effects jumped to an inflation rate of over 6% in March, up from 5.2% in February.
Kotak Mahindra Bank’s chief economist, Upasna Bhardwaj, maintains a cautious stance due to the potential impact of heatwaves, which she believes could keep food inflation high and unstable in the summer. Rate cut possibilities appear to be pushed to the later part of the fiscal year, contingent on the monsoon’s outcome, the crude oil price trajectory, and the US Fed’s rate adjustment timing.
Credit rating agency ICRA anticipates food and beverages inflation, which was marked at 7.8% in March, to retain levels above 7% in April. Aditi Nayar, ICRA’s chief economist, underlines the cruciality of a favorable monsoon in mitigating the heightened inflationary pressures due to a potential intensification of the current heatwave, essential for keeping food inflation and broader inflationary expectations anchored.
