Retail inflation rises to 6.52% in Jan; breaches RBI's upper limit

India's retail inflation, measured by the Consumer Price Index (CPI), jumped to 6.52% in January 2023 from 5.72% in December 2022, breaching the Reserve Bank of India's (RBI) upper tolerance limit of 6%, shows government data.

While urban inflation rose to 6% in January compared with 5.39% in the previous month, rural inflation soared to 6.85% last month from 6.05% in December 2022, according to data released by the Ministry of Statistics & Programme Implementation.

Food inflation, measured by the Consumer Food Price Index that accounts for nearly half the CPI basket, rose to 5.94% in January, up from 4.19% in December. Fuel and light inflation rose 10.84%. Inflation rate for the clothing and footwear segment rose 9.08%.

In the food basket, the inflation rate for vegetables contracted 11.70% in January while that for cereals rose 16.12%. Inflation rate for eggs and milk stood at 8.7%. Inflation in spices jumped to 21%.

This comes days after chief economic adviser V Anantha Nageswaran said that inflation may not be as big a problem in the next financial year, as it was in 2022, even though uncertainties remain. Addressing the media on the Economic Survey 2022-23, Nageswaran said he expected inflation to remain well behaved in 2023-24 with upside risks.

"We expect that if the global economy slows down as the IMF and many people project, then commodity prices should retreat on the back of the monetary tightening. In that case many of the analysts in India are expecting a much lower wholesale price index in the next financial year," Nageswaran said.

The Reserve Bank of India (RBI) has forecast retail inflation at 6.5% for FY23 and at 5.3% for FY24. The RBI Monetary Policy Committee last week hiked the key repo rate to 6.50%, while withdrawing the "accommodative stance" to control high inflation in the country.

"Growth prospects in major economies have improved, while inflation still remains on well-above target in major economies," said RBI governor Shaktikanta Das.

"Emerging market economies are facing sharp tradeoffs between supporting economic activity and controlling inflation while preserving policy credibility," he added.

Das, who chairs the six-member MPC, had last year said the central bank will keep "Arjuna's eye" on evolving inflation dynamics as core inflation (CPI excluding food and fuel) remained sticky and exposed to global factors.