Retail inflation at 6.52% in January 2023 surprised economists, analysts and the common man. A three-month high consumer price index (CPI) has validated RBI’s hawkish tone in the December monetary policy review. The central bank had raised the repo rate, key benchmark interest rate by 25 basis points. Repo rate is the rate at which banks borrow funds from RBI. Repo rate is currently at 6.5%.
After a consistent fall over the past few months, CPI came in with a negative surprise pushed by higher food inflation. While urban inflation came in at 6%, rural inflation was higher at 6.85% in January 2023. CPI constituents are food, clothing, footwear, fuel and light and housing.
Food inflation was higher for rural India at 17% compared to 13.8% in urban India in January 2023. Food and beverages has the highest weightage of 46% in the consumer price index, up 6.19% over the same period previous year. In the food and beverages category, cereals and spices witnessed high inflation in January 2023.
CPI or retail inflation is out of RBI’s comfort zone. RBI needs to maintain retail inflation at 4% with a margin of 2% on either side of the target rate. Thus a mild repo rate hike is definitely not on the cards of the monetary policy committee in April 2023.
