India's retail inflation rises to 3.81% in March

A vendor waits for customers at his vegetable stall at a wholesale fruit and vegetable market in Mumbai, India, February 13, 2017. REUTERS/Shailesh Andrade - RTSYFJY

India's retail inflation rate rose to 3.81 percent in March from February's 3.65 percent, mirroring a revival in household spending after months of waning demand triggered by a demonetisation-induced cash crunch.

The Reserve Bank of India (RBI), which kept its key lending rate unchanged last week, has warned of a looming inflation threat over the next 6-12 months, obliquely leaving the door ajar for an interest rate hike in 2017-18.

For 2017-18, RBI has projected retail inflation to average 4.5 percent in the first half and 5 percent in the second half.

A higher inflation rate, can indicate a pick up demand and stronger economic activity, driven by higher spending on goods such as cars and greater discretionary expenses on eating out and recreation.

In March 2016, consumer price index (CPI)-based retail inflation grew 4.83 percent.

The latest price data released by the statistics office represents signs of a turnaround in shop-end sales, triggered by the unexpected ban on Rs 500 and Rs 1000 currency notes in November, 2016.

The currency recall forced families to spend less, depressing the demand for some goods including perishable products since November, when the two notes were outlawed.

Consumer food price inflation, a metric to gauge changes in monthly kitchen costs, also moderated to 1.93 percent as compared with 2.01 percent in February.

The price data also held out pointers on demonetisation’s after-effects on prices of housing, fuel and light, health, transport and communication, pan, tobacco and intoxicants, and education that together account for 38 percent of India's retail inflation basket.

Housing inflation grew by 4.96 percent in March from 4.90 percent in February.