CPI Inflation Rises To 5.5% In March

Retail inflation rose further in March as fuel and transportation costs increased alongside some categories within the food basket.

Consumer Price Index inflation stood at 5.52% last month compared with 5.03% in February and 4.06% in January 2021, according to data released by the Ministry of Statistics and Programme Implementation on Monday. A Bloomberg poll had pegged March retail inflation at 5.4%.

Inflation in food and beverages rose to 5.24% in March from 4.25% in the previous month.

In March last year, inflation had been computed based on partial data as field operations by the statistical division had been halted due to the spread of Covid-19. As such, the year-on-year computation of price changes would also be impacted by those underlying anomalies.

Core inflation, as computed by ICRA Ltd, rose to an “unnerving” 6% in March, according to Aditi Nayar, chief economist at the rating agency. “Despite a month-on-month decline in food prices, driven by vegetables, egg, spices, cereals and sugar, the inflation for food and beverages hardened to 5.2% in March 2021 on account of the base effect,” Nayar said.

While year-on-year core inflation remains elevated, sequential momentum in core inflation eased, said Sreejith Balasubramanian, economist at IDFC Asset Management Company.

Inflation Internals

• Inflation in oils and fats category was at 24.92% in March compared with 20.78% a month ago.
• Inflation in the pulses category rose to 13.25% last month from 12.54% in February.
• Cereal prices fell 0.7% over a year ago in March compared to a drop of 0.35% in February.
• Vegetables prices fell 4.83% over a year ago compared to a drop of 6.27% in February.
• Inflation in fruits was at 7.86% in March compared with 6.28% in February.
• Fuel and light inflation stood at 4.5% versus 3.53% a month ago.
• Inflation in transport and communication was at 12.55% compared with 11.36% in February.
• Clothing and footwear inflation was at 4.41% versus 4.21% a month ago.
• Housing inflation stood at 3.5% compared with 3.23% in February.
• Household goods and services inflation was at 3.28% compared with 3.07% the previous month.
• Health inflation was at 6.17% against 6.33%.

Inflation Outlook

Nayar from ICRA said that inflation may fall temporarily in April due to base effects. Prices last April had spiked due to supply disruptions.

“After the uncomfortable spike seen in the March 2021, we expect a temporary drop in the April 2021 CPI print to around 4.0%, led by the base-effect related to the lockdown, as well as the decline in prices of vegetables and modest dip in retail fuel prices, before an upturn resumes over the remainder of this quarter,” Nayar said.

Upside risks, however, remain.

“Risks of increasing input costs, higher commodity prices, seasonal upside in food prices and possible re-emergence of food supply disruptions due to localised lockdowns and better pricing power would be key risks to the FY22 inflation forecast,” said Madhavi Arora, lead economist at Emkay Global.