India's retail inflation again beyond comfort zone; here's what analysts have to say

Retail inflation in India again breached RBI's upper tolerance band in the month of January 2023, with the Consumer Price Index pegged at 6.52 per cent, government data released on Monday showed.

The retail inflation in rural and urban India was 6.85 per cent and 6.00 per cent, respectively. Among groups, cereals and products, eggs, spices, among others, contributed to the elevation in retail inflation in January.

India's retail inflation was above RBI's six per cent target for three consecutive quarters and had managed to fall back to the RBI's comfort zone only in November 2022.

Since May last year, the RBI has increased the short-term lending rate by 250 basis points, including the latest 25 bps hike, to tame inflation. Raising repo rate helps in cooling demand in the economy and thus helps in managing inflation.

Under the flexible inflation targeting framework, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row.

For the current financial year 2022-23 ending March, inflation was projected by RBI at 6.5 per cent, with an average of 5.7 per cent in the January-March 2023 quarter.

Following are some of the excerpts of views from analysts and experts on the January retail inflation numbers:

Madhavi Arora, Lead Economist at Emkay Global Financial Services

The inflation shocker led by food as well as consistently higher core inflation momentum has depicted we are far from the 'durable disinflation' process.

This upside inflation surprise comes after RBI revised down its 4QFY23 CPI forecast by 20 bps in the last MPC policy. This shows how uncertain the inflation trajectory can get, for even near-term estimates and possibly explains why they maintained the current stance of withdrawal of accommodation to keep policy flexibility ahead.

Raghvendra Nath, MD of Ladderup Wealth Management

CPI breached the upper tolerance band of RBI again at 6.52 per cent higher than the market expectations of 6.1 per cent. Costly food items and rise in oil prices pushed the inflation upwards. India's dependence on oil imports continues to affect India's inflation.

We may see further rate hikes from RBI if the inflation figures continue to stay above the upper band. This will dampen the mood of the street as it was expecting inflation to cool off in line with RBI's expectations (5.7 per cent for Jan-Mar 2023 quarter).

Vivek Rathi, Director, Research at Knight Frank India

The spike in January 2023 headline inflation was led by surge in food prices, primarily cereals. Inflationary pressure was witnessed across non-food categories as well. Prices rise in categories such as clothing and footwear, fuel, etc. has consistently remained high.

This, overall increase in prices has caused shrinkage in disposable incomes of the households which could impact their purchasing capacity. Lenders may also take an adverse view of the loan repayment capacity of borrowers.

In the coming months, revival in service sector which could potentially boost demand would further add to inflationary pressure, especially in the core categories. As inflationary pressure continues to sustain, in our view, the RBI is unlikely to stop its rate hike cycle any time soon. We expect the moderate pace of repo rate hike to continue for the next few MPC meetings in 2023-24.

Marzban Irani, CIO - Debt at LIC Mutual Fund

- Food inflation is seasonal in nature and hence expected to remain volatile.

- We expect food inflation to decline over the period

- This is an opportunity for investors who are currently sitting on the fence to invest in duration funds based on their risks appetite.

Rajani Sinha, Chief Economist at CareEdge

CPI inflation move to 6.5 per cent in January is higher than our expectations and is worrisome. Sequentially, inflation has snapped a two-month contractionary streak as food inflation and core inflation remained firm.

Going forward, sticky core inflation will remain a concern. However, broadly we expect the average CPI inflation to moderate to 5.1 per cent in 2023-24 on the back of softening prices of cereals and pulses. The monetary policy tightening so far, and some fizzling of pent-up demand should also help ease CPI inflation. From the policy perspective, we believe that further rate hikes are unlikely.

However, we need to be cautious as RBI has left the window open for possibility of another rate hike in case of a sustained rise in inflation.

Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities

Now that inflation is back above RBI's comfort level the markets will expect a hawkish bias from the central bank going ahead.

( With inputs from ANI )