InvestorQ : How did the retail of CPI inflation pan out for the month of February 2021?
vaishnavi mhatre made post

How did the retail of CPI inflation pan out for the month of February 2021?

vidhya Laxmi answered.
1 year ago

The MOSPI announced the retail or CPI inflation for the month of February 2021 on 12 March. Here are some key highlights.

· India’s retail CPI inflation surged by 97 basis points to a 3-month high of 5.03% in Feb-21 compared to 4.06% in the month of Jan-21.

· The big driver of higher inflation was food inflation, which bounced back sharply from 1.89% to 3.87% on a sequential month on month basis.

· A sharp spike in fuel prices led by an almost daily spike in the prices of petrol and diesel also fuelled the higher level of CPI inflation in Feb-21. Petrol inflation was up 20.6%.

· Higher retail prices of fuel were an outcome of higher crude prices and steep excise duties. This gave a push to transport and communication inflation to 4-month highs.

· One of the reason the food basket got negatively impacted was that the transport costs had a secondary impact on food prices, across most of the categories.

· Food basket has a weight of nearly 45.86% in the overall CPI inflation basket and hence that was the most significant aspect of the overall inflation spurt.

· Experts have also pointed out that the excess liquidity in the system, combined with the volatility in fuel prices, could also pose a bigger risk to inflation in the days to come.

· The big worry would be the sharp spike in core inflation to 5.89%. Core inflation excludes food inflation and fuel and covers items like clothing, personal effects, housing, recreation etc. This has been very sticky for a long time.

· MPC or the Monetary Policy Committee normally uses the inflation rate as a benchmark. With such risks to inflation, it is expected to continue the pause in interest rates for more time and also is likely to keep the stance as accommodative.

· For Feb-21, there was also a spike in services sector inflation with health inflation at a 17-month high of 6.3%. Clearly supply chain bottlenecks are turning structural.