India’s retail inflation eases below RBI’s upper tolerance level

By Aftab Ahmed and Nikunj Ohri

NEW DELHI (Reuters) -India’s annual retail inflation for March rose at the slowest pace in nearly 15 months and was below the central bank’s upper tolerance level for the first time this year, on the back of softer food prices.

Annual retail inflation eased to 5.66% in March from 6.44% in the previous month, government data showed on Wednesday. This was the lowest reading since Dec. 2021 which was at 5.59% and also lower than Reuters forecast of 5.80% in March.

The Reserve Bank of India (RBI) targets a inflation bank of 2%-6%.

Food inflation, which accounts for nearly half of the overall consumer price basket, moderated to 4.79% compared with 5.95% in the previous month, vegetable prices eased, offsetting surging cereal prices.

“The sequential decline in the CPI inflation in March was broad-based across the major sub-indices, with only housing reporting an uptick,” said Aditi Nayar, economist at ICRA.

Even core inflation, which has been a major concern for policy makers for months, eased to between 5.75% and 5.78% last month, according to three economists’ estimates, compared with between 6.05% and 6.12% in February.

Prices of vegetable and oils declined nearly 8% year-on-year, while milk and eggs continued to be costlier.

Milk prices have remained on the boil for months, rising at the fastest in a decade, due to higher fodder costs and a shortage of milch cattle due to the deadly lumpy skin disease epidemic.

Last week, RBI surprised markets by holding its key repo rate steady after six consecutive hikes, saying action over the past 12 months is still playing out and would increasingly weigh on the future inflation trajectory.

RBI’s sudden pause came even as retail inflation has remained above the central bank’s mandated target range for 10 out of the 13 readings.

However, India Meteorological Department’s Tuesday forecast of normal monsoon rains in 2023 cheered policy makers as agricultural activities in the country are heavily dependent on seasonal rains that begin from June.

“Inflation is likely to trend lower in the coming quarter … The recent projection by IMD of a normal monsoon bodes well for the inflation trajectory,” said Sakshi Gupta, economist at HDFC Bank.

She, however, warned, the impact of heat waves and any disruption in the progress of monsoon due to El Nino remains a risk and could upset the disinflation trend.

Most economists said that the RBI would likely remain on hold at its June monetary meeting.

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