RBI hides letter amid fears of market disruption

India’s retail inflation increased in January after two consecutive months of decline, largely due to higher food prices. According to data from the Ministry of Statistics and Programme Implementation, retail inflation surged to 6.52% in January, up from 5.72% in December last year.

This increase has partly been driven by rising food prices, which make up almost 40% of the Consumer Price Index (CPI) basket. The central bank, which is expected to maintain inflation within a range of 2-6%, has raised lending rates to control inflation.

Although a surge was expected due to an unfavourable base effect from last year, January’s figures were much higher than anticipated. This has been a concern for central banks globally, including in India, where higher inflation is compounded by supply-side disruptions and the uncertain nature of the Russia-Ukraine war. The RBI has forecast retail inflation at 6.5% for FY23 and 5.3% for FY24.

The RBI has already increased the short-term lending rate by 225 basis points since May last year to contain inflation. In its Monetary Policy Committee meeting on February 8, Governor Shaktikanta Das flagged core inflation’s stickiness as a matter of concern.

The RBI had previously cut India’s inflation forecast for this fiscal year, but respondents in an RBI survey conducted in January expected higher price pressures for household durables and the cost of housing over the next three months compared to the previous round.