Inflation based on the Consumer Price Index (CPI), also known as retail inflation, rose to 6.07 percent in February from 6.01 percent in January, data released by the statistics ministry on March 14 showed.
Retail inflation is measured by the Consumer Price Index (CPI) which shows the changes in retail prices of goods.
Retail inflation hit its fastest pace in eight months in February owing to higher prices of food and manufactured goods. The retail inflation prints remained over the central bank’s 6 percent upper tolerance band for the second straight month.
Earlier, data released by the commerce ministry on March 14 showed that the Wholesale Price Index (WPI)-based inflation jumped to 13.11 percent in February from 12.96 percent in the previous month. WPI, or wholesale inflation, measures the changes in prices of goods at the wholesale level or in the stages before the retail level.
Inflation has been a strong concern for the economy and the market of late which has exacerbated owing to a sharp jump in crude oil prices and firming commodity prices due to the Russia-Ukraine war.
Inflation is the gradual loss of a currency's buying value over time. The increase in the average price level of goods and services in an economy over time may be used to calculate a quantitative estimate of the pace at which buying power declines. A rise in the overall level of prices signifies that a unit of money now buys less than it did previously.
As commodities and services become more expensive, a currency unit's buying power declines. This has an effect on a country's cost of living. When inflation is strong, the cost of living rises along with it, resulting in a slowdown in economic growth. In order for spending to be encouraged and saving to be discouraged, a certain degree of inflation is essential in the economy.
What's RBI Got To Do With it?
Managing inflation is one of the key roles of the RBI and it has been mandated to keep inflation within 2 percent band of 4 percent. Which means, at over 6 percent, inflation has now repeatedly breaches RBI's upper-band of inflation tolerance.
In its last Monetary Policy meeting on held between February 8-10, 2022, RBI had said, “On balance, the inflation projection for 2021-22 is retained at 5.3 per cent, with Q4 at 5.7 per cent. On the assumption of a normal monsoon in 2022, CPI inflation for 2022-23 is projected at 4.5 per cent with Q1:2022-23 at 4.9 per cent; Q2 at 5.0 per cent; Q3 at 4.0 per cent; and Q4:2022-23 at 4.2 per cent, with risks broadly balanced."
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It added, the Monetary Policy Committee notes that inflation is likely to moderate in first half of current calendar year and move closer to the target rate thereafter, providing room to remain accommodative. Timely and apposite supply side measures from the Government have substantially helped contain inflationary pressures. The potential pick up of input costs is a contingent risk, especially if international crude oil prices remain elevated.
Crude Oil prices have risen vertically over the past few weeks on the back of Russia-Ukraine War. In India, petrol and diesel prices haven't seen any increase since November due to the five state assembly elections. However, analysts were expecting fuel prices in India to begin rising from March 10 once election results were announced. That hasn't happened yet. Global crude oil prices have started to cool off from 14-year high of $130 per barrel to around $100 per barrel.
On March 14, Reuters reported India is considering buying Russian oil at a discounted rate with payment via a new Rupee-Rouble mechanism since Russia has been barred from using global payment system SWIFT as part of economic sanctions for waging an invasion of Ukraine.
Out of the current 80 percent oil imports, India currently meets less than 3 percent of this demand from Russia.