Retail inflation likely rebounded from 12 months low to 5.9% in January

By Madhumita Gokhale

BENGALURU (Reuters) - Higher food prices likely nudged up India's annual retail inflation last month from a 12-month low in December, but it stayed within the Reserve Bank of India's targeted range for a third consecutive month, a Reuters poll of economists predicted.

Inflation ran above the upper tolerance limit of 6.00% for the first 10 months of 2022 but fell below it in the last two, largely because of a fall in food inflation. That downtrend likely reversed last month.

India's rupee fell more than 10% last year against the dollar and is adding to inflationary pressures through higher import prices.

The inflation rate, measured by the annual change in the consumer price index (CPI), is forecast to have risen to 5.9% in January from 5.72% in December, according to the median view from a Feb. 6-9 Reuters poll of 44 economists.

Forecasts ranged from 5.4% to 6.46%, with one-third of respondents expecting inflation to be above the RBI's upper tolerance band of 6.00%.

"Food inflation, particularly of vegetables, has continued to come down, but the rate of decline has moderated. Wheat prices have remained high. Some other food categories such as milk and eggs are also expected to remain high for the month of January," said Sakshi Gupta, principal economist at HDFC Bank.

"Within core inflation, the prices of gold, which are a part of personal care and effects, were also higher. These factors combined together would lead to a slight upward movement in inflation in January."

Core inflation, which excludes volatile food and fuel prices, was still running at 6.10% in December, which makes it difficult for the RBI to look away and to keep the tightening cycle going.

The RBI, for its part, increased its key repo rate by one quarter percentage point on Wednesday. Prior to the meeting it was expected to be its last hike, but the RBI caught markets off guard by hinting more rate increases were possible.

Inflation was expected to remain above the medium-term target of 4.00% in the coming years, with an average of 5.00% in upcoming fiscal year starting April 1, a separate Reuters poll found, near the RBI's prediction of 5.30%.

That suggests the RBI will not cut interest rates any time soon.

"The RBI remains cautious and is not in any hurry to communicate an end to its hiking cycle just yet. This is justified as inflation has yet to fall satisfactorily, and many uncertainties remain," wrote Dhiraj Nim, economist at ANZ.

"Given the RBI's readiness to act, the risk around our forecasts is to the upside, with a potential 25bp rate hike in April, if headline and core inflation do not ease."

Wholesale inflation likely slowed to 4.54% last month from a year ago, down from 4.95% in December, the poll showed.

 

(Reporting by Madhumita Gokhale; Polling by Anant Chandak, Devayani Sathyan and Veronica Khongwir; Editing by Hari Kishan, Vivek Mishra and Bernadette Baum)