Inflation jumps to three-month high

Driven by a big spike in prices of cereals and other products retail inflation jumped to a three-month high of 6.52% in January from 5.72% in December. This has increased the chances of another round of rate hike by the Reserve Bank of India (RBI) in the current cycle. The repo rate, which was increased by 0.25% to 6.5% in the latest monetary policy review, may see a similar increase in April review.

According to official data, the inflation, measured by consumer price index (CPI), rose sharply in January from a one-year low in December, to breach the upper limit of RBI’s medium-term target of 2-6% again. It was below the limit in November and December, but was above the threshold in the previous 10 months.

Rural retail inflation outpaced the general index and was higher at 6.85% in January 2023 against 6% in urban areas. Prices of several items hardened – higher annual inflation rate was reported in January compared to December in components of core inflation namely “personal care and effects (9.57%), health (6.36%) and “prepared meals, snacks, sweets, etc.”, while slight declines were reported in “clothing and footwear” (9.08%), “household goods and services” (7.26%). The “food and beverages” sub group, which has a 45.86% weight in the combined CPI basket, registered a 6.19% inflation last month from 4.58% in December 2022. Vegetables continued to register deflation for the third straight month but it was lower at 11.7% in January compared to 15.08% in December. Prices of eggs, meat and fish, and milk also rose in January.