CPI inflation reaches RBI’s tolerance limit, WPI stays in double-digits

Inflation based on consumer price index (CPI) rose for the fourth consecutive month to 6% in January compared with 5.7% previous month. Headline inflation is now at the upper limit of Reserve Bank of India’s target range of 2-6%. A ‘base effect driven’ sharp rise in food inflation drove the rise in CPI, even as core¹ inflation remained elevated. Meanwhile, wholesale price index-linked (WPI) inflation, while remaining in double digits for 10th consecutive month, moderated slightly to 13% in January compared with 13.6% previous month.

Food CPI inflation has risen significantly over the past three months as impact from the favourable base has worn off. Meanwhile, core CPI inflation remains sticky at 6%. With producers facing double-digit WPI inflation, we expect it to get passed on to retail prices. The pass-through can increase in the next fiscal as domestic demand strengthens. In addition, surging crude oil prices have added to the upside risks. Due to these factors, we expect CPI inflation to moderate only slightly to 5.2% in fiscal 2023 compared with an expected 5.5% in the current fiscal.

Inflation trends in January: highlights

• CPI inflation rose to 6.0% on-year in January from 5.7% previous month and 4.1% in January 2021
• Sequentially, CPI grew 0.5% on-month² in January, similar to the rate seen in past 2 months
• Food CPI inflation rose to 5.4% on-year from 4% previous month and 2% in January 2021
• Fuel CPI³ inflation moderated to 9.3% from 11% previous month, but higher than 3.9% in January 2021
• Core CPI inflation was slightly lower at 6% compared with 6.1% previous month, but higher than 5.5% in January 2021
• Rural CPI inflation was higher at 6.1% in January compared with 5.4% previous month. Urban CPI inflation was stable at 5.9% as previous month
• WPI inflation moderated to 13% in January from 13.6% previous month, but higher than 2.5% in January 2021

¹ CPI excluding food and beverages and fuel and light
² All on-month growth numbers are seasonally adjusted
³ CPI fuel and light