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