How did the India inflation number look like for the month of March 2022?

March 2022 inflation was always supposed to be higher than Feb-22 but the actual impact was much bigger than anticipated. For Mar-22, retail inflation came in at a 17-month high of 6.95%. In retrospect, retail inflation surged by 260 bps from 4.35% to 6.95% between September last year and March this year. With petrol and diesel price hikes have just started after a long break, downstream impact on transport and logistics will be evident in Apr-22.

A ***** trend was the big spike in rural inflation and especially rural food inflation. Overall food inflation for Mar-22 was up by 183 bps from 5.85% to 7.68% on a month on month basis. Over the last 5 months, food inflation has actually spiked by a shocking 600 basis points. Food basket has a huge weightage of 45.86% in the inflation basket and hence pinches the hardest. However, the real story is on rural inflation.

Rural inflation (inflation in the villages) was up from 6.38% in Feb-22 to 7.66%. This was largely on account of rural food spiking from 5.81% to 8.04% just over the last one month. Rural food inflation was the worst hit in the case of high protein food items. For instance, the inflation for meat & fish was 9.82%, oils & fats at 20.75%, spices at 8.96%, vegetables higher at 10.57%, clothing 9.00%, footwear at a steep 12.18% and personal care at 9.34%.

The tougher problem for the RBI is tackling the monster of core inflation, which is the residual inflation excluding fuel and food. Now core inflation is significant as it is stickier and takes longer to rectify and also needs fiscal support. Core inflation at 6.5% in Mar-22 is a concern. Controlling core inflation is a trade-off between government revenues and inflation control, which is tends to create a tough dilemma for the central banks.

Finally, what does this mean for RBI stance on repo rates? Remember, the US inflation has also come in at 8.5% for Mar-22 and the US Fed has already hiked rates by 25 bps in March. If it walks the talk of raising by 50 bps in May and also walks the talk on its $95 billion bond portfolio wind-down in May-22, then RBI has a real problem. That would really limit the options for the RBI and force them to tag on to the global hawkish approach.