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