Because of a favourable foundation, India’s headline retail inflation is likely to have fallen to a 15-month low in March. Consumer Price Index (CPI) inflation likely dipped to 5.7 percent last month from 6.44 percent in February, according to a Moneycontrol poll of 17 experts.
CPI inflation will revert to the Reserve Bank of India’s (RBI) statutory tolerance zone of 2-6 percent after two months at 5.7 percent. Since the beginning of 2022, inflation has been over the 6% mark in all but two months and has spent 41 consecutive months above the central bank’s medium-term objective of 4%.
On April 12, the Ministry of Statistics and Programme Implementation will announce retail inflation figures for March.
Inflation in March
Inflation is expected to reduce slightly in March, owing to a beneficial base effect. The CPI increased by 1% month over month in March 2022, providing a strong foundation for the March inflation print this calendar year.
Aside from the base effect, economists believe food prices are essentially flat.
| ORGANISATION | ESTIMATE FOR MARCH CPI INFLATION |
| Deutsche Bank | 5.54% |
| Kotak Mahindra Bank | 5.58% |
| HDFC Bank | 5.6% |
| Standard Chartered Bank | 5.6% |
| YES Bank | 5.66% |
| Barclays | 5.7% |
| CareEdge | 5.7% |
| DBS Bank | 5.7% |
| Societe Generale | 5.7% |
| IndusInd Bank | 5.72% |
| State Bank of India | 5.75% |
| ICRA | 5.8% |
| IDFC First Bank | 5.8% |
| Motilal Oswal Financial Services | 5.8% |
| Emkay Global Financial Services | 5.81% |
| Sunidhi Securities | 5.82% |
| L&T Finance | 6.36% |
“This stickiness in prices comes amid larger declines seen in price of wheat and atta, along with moderation in cooking oil, vegetable, and egg prices, all of which eased sequentially,” said Rahul Bajoria, Head of EM Asia (ex-China) Economics at Barclays.
Other food costs, such as dairy goods, fruits, meat, and legumes, climbed consecutively. Overall, a high base is likely to drive ‘food and beverage’ inflation below 5%, down from 6.26 percent in February.
On the other hand, the increase in LPG prices announced in March is projected to raise total inflation.
Core inflation, excluding food and fuel, is expected to be about 6% this year.
Policy Impact
The new inflation figures came just days after the RBI’s Monetary Benchmark Committee (MPC) stunned investors by maintaining the benchmark repo rate at 6.5 percent on April 6.
The rate-setting panel underlined the need to assess the effect of its 250 basis point rate rises in 2022–23, adding that it was ready to act if necessary. However, experts believe the MPC will not raise interest rates further and will instead take a “prolonged pause” until inflation returns to 6% or higher.
“…inflation is likely to remain sub-5 percent in April-June, albeit driven by favourable base effects,” economists from Standard Chartered Bank said.
According to the RBI’s most recent prediction, CPI inflation may average 5.2 percent in 2023–24, with quarterly forecasts ranging from 5.1 percent to 5.4 percent.
The MPC will meet again on June 6–8, at which point April inflation data will be available.
Industrial growth
On April 12, the statistics ministry will also issue the Index of Industrial Production (IIP) figures for February. According to the median of 15 economists surveyed by Moneycontrol, this will reveal that industrial production increased by 5.8 percent.
| ORGANISATION | ESTIMATE FOR FEBRUARY IIP GROWTH |
| L&T Finance | 3.8% |
| HDFC Bank | 4.2% |
| ICRA | 4.5% |
| Emkay Global Financial Services | 4.9% |
| Standard Chartered Bank | 4.9% |
| IndusInd Bank | 5.3% |
| YES Bank | 5.7% |
| Deutsche Bank | 5.8% |
| State Bank of India | 5.8% |
| Kotak Mahindra Bank | 6.4% |
| IDFC First Bank | 6.5% |
| Motilal Oswal Financial Services | 6.6% |
| DBS Bank | 7% |
| Sunidhi Securities | 7.29% |
| CareEdge | 8.7% |
The predicted February IIP growth rate of 5.8 percent would be the highest in three months. Industrial output increased by 5.2 percent in January.
Economists were divided on whether IIP growth would decline in February compared to March. According to Rupa Rege Nitsure, Group Chief Economist at L&T Finance, poorer high-frequency indicators, such as a drop in core sector growth, suggested that IIP growth might slow in February.
According to data issued on March 31, the production of eight main sectors climbed by 6% in February, down from 8.9% in January. Core industries account for around 40% of the IIP. As a result, the former’s performance is seen as a forerunner to the latter.
Meanwhile, India’s goods exports have fallen in three of the last five months year on year, with an anaemic 1.5 percent growth in the other two months. India’s goods exports fell by 2.5 percent on average throughout this five-month period.
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