India's headline inflation rate based on the Consumer Price Index (CPI) jumped to 6.01 percent in January 2022, as per data released by the National Statistical Office on February 14.
At 6.01 percent, last month's CPI inflation reading is the highest in seven months.
CPI inflation was 5.66 percent in December 2021.
The inflation print for January 2022 is along expected lines, with Reserve Bank of India (RBI) Governor Shaktikanta Das saying earlier today that it was likely to come in around the 6.00 percent mark, largely due to an unfavourable base effect.
The RBI has forecast that CPI inflation will average 5.7 percent in the first quarter of 2022. As such, inflation is expected to edge lower in the remaining two months of January-March 2022.
The rise in inflation in January 2022 came about despite the general index of the CPI falling by 0.3 percent on a month-on-month basis, indicating the presence of an unfavourable base.
Sequential price momentum weakened in January 2022, with the index for vegetables crashing by 7.4 percent month-on-month. The story was similar for edible oils, albeit not to the same extent, with the index for oils and fats declining by 1.5 percent compared to December 2021.
However, the presence of an unfavourable base effect meant that despite the Consumer Food Price Index falling by 1.3 percent in January 2022 from December 2021, food inflation shot up to 5.43 percent from 4.05 percent.
| JAN 2022 INFLATION | CHANGE IN INDEX, JAN 2022 vs DEC 2021 | |
| CPI | 6.01% | -0.3% |
| Food index | 5.43% | -1.3% |
| Cereals | 3.39% | 0.5% |
| Meat, fish | 5.47% | -0.1% |
| Oils, fats | 18.70% | -1.5% |
| Vegetables | 5.19% | -7.4% |
| Pulses | 3.02% | -0.3% |
| Clothing, footwear | 8.84% | 1.0% |
| Housing | 3.52% | 0.7% |
| Fuel, light | 9.32% | 0.1% |
| Miscellaneous | 6.55% | 0.4% |
While the sequential momentum in food prices eased last month, worries remain over certain other components of the CPI.
Three groups - namely clothing and footwear, housing, and miscellaneous - all saw an increase in price momentum in January 2022. This ensured that core CPI inflation was largely unchanged at 6.0 percent, indicating that underlying price pressures remain robust.
According to ICRA Chief Economist Aditi Nayar, the month-on-month rise in prices of clothing and footwear suggest "margin pressure forced producers to raise prices in spite of the unfolding third wave".
The RBI's Monetary Policy Committee (MPC) had noted in its statement on February 10 that cost-push pressures on core inflation may continue in the near term. However, the central bank's surveys suggested "some softening in the pace of increase in selling prices by the manufacturing and services firms going forward, reflecting subdued pass-through", the MPC had added.
At 6.01 percent, CPI inflation is outside the RBI's flexible inflation targeting band of 2-6 percent. However, this does not constitute a failure as the MPC is deemed to have failed in meeting its inflation mandate only when average inflation is outside the target band for three consecutive quarters.
However, this is the 28th month in a row that CPI inflation has come in above the medium-term target of 4 percent.
"The (inflation) trajectory is expected to have peaked out in January," noted Upasna Bhardwaj, senior economist at Kotak Mahindra Bank.
The RBI sees CPI inflation averaging 4.9 percent in Q1 FY23, 5.0 percent in Q2 FY23, 4.0 percent in Q3 FY23, and 4.2 percent in Q4 FY23. For the year as a whole, the central bank sees inflation averaging 4.5 percent, down 80 basis points from 5.3 percent this year. However, economists think the RBI's inflation forecast for next year is likely an underestimation.
"We reckon inflation is unlikely to ease to 4.5 percent in FY23 and will likely average around 5.2 percent. The risk of pass-through of cost-push pressures into selling prices and higher crude will weigh on RBI's forecast. Nonetheless for now, RBI is in no rush to change its policy stance," said Madhavi Arora, lead economist at Emkay Global Financial Services.
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