Retail Inflation breaches central bank's threshold limit

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Retail Inflation breaches central bank's threshold limit

  • India’s retail inflation accelerated past the 6% mark in January to hit 6.01%,
  • It has breached the central bank’s tolerance threshold for consumer price inflation for the first time since June 2021.
  • The Consumer Food Price Index spiked significantly from 4.05% in December to 5.43% in January

Impact of spike in inflation

  • Rural India has impacted more from the inflation spike as per official data, with the pace of price rise touching 6.12% from 5.36% in December
  • Impact was lesser on urban India as inflation remained virtually unchanged at 5.91% in January, from 5.9% a month earlier.
  • The central bank is unlikely to raise interest rates as it is more focused on post covid recovery of the economy

Factors responsible for rise in inflation

  • Rising cost of food, beverages and footwear
  • Surge in oil prices and upbeat demand following fewer pandemic curbs

Measures to control inflation

  • Accommodative instance: central bank has kept key policy rates unchanged
  • Open market operations to reduce the level of liquidity in the economy
  • Rise in cash reserve ratio
  • Rise in Statutory liquidity ratio
  • Fiscal and other supply side measures like excise duty cuts

Way forward

  • Though the retail and wholesale inflation has been rising and stayed elevated for a few months, this is not a matter of concern for the central as the focus remains on growth. As per RBI, inflation is likely to ease as progress further in CY22. Ease in geo-political tensions, subsequent fall in crude prices, and a good monsoon year will help ease in retail inflation