India's retail inflation rises to 5.03% in Feb; January IIP contracts 1.6%

Food inflation rose steeply to 3.87 per cent in February, compared to 1.89 per cent in the previous month, according to government data released on Friday

India's retail inflation rose to 5.03 per cent in February, mainly on account of higher food prices, according to the government data released on Friday. The consumer price index (CPI)-based inflation was 4.06 per cent in January 2021 and was 6.58 per cent in February 2020.

Food inflation rose steeply to 3.87 per cent in February, compared to 1.89 per cent in the previous month.

The core inflation, which measures growth in the consumer price index after removing the food and fuel components stood at 5.8 per cent as against 5.7 per cent in the previous month. 

Meanwhile, the Index of Industrial Production (IIP) contracted 1.6 per cent for January 2021, according to the data released by the Ministry of Statistics and Programme Implementation (MoSPI).

The industrial output rose by 1 per cent in December 2020 and grew by 2 per cent in January 2020.

The manufacturing sector output contraced by 2.0 per cent in January, while the mining output declined by 3.7 per cent. Meanwhile, the power generation grew by 5.5 in January.

Within the food items, the rate of fall in vegetables prices was at 6.27 per cent in February, as against 15.84 per cent in the previous month.

Inflation in 'fuel and light' category remained elevated at 3.53 per cent during February compared to 3.87 per cent in January.

The February CPI is the last CPI inflation print before the RBI announces its revised monetary policy framework, reviewing its 4 +/-2 per cent inflation band by the end of the month.

The Reserve Bank of India, which looks at the inflation levels in the economy while deciding on the key policy rates, suggested in a report on Currency and Finance 2020-21 that the current mandate of 2-6 per cent inflation target for the monetary policy was appropriate and should continue for the next five years.

"Inflation inched higher in the month of February to 5 per cent from 4.06 per cent in January on the back of rising fuel prices and inflationary pressures in certain food items like onions, meat and eggs. As we had suspected, perhaps the low point for inflation is behind us for some months to come. From a monetary policy perspective, the rising inflationary risks (fuel prices, demand pressures etc.), although still nascent, could trigger some caution from the RBI. That said, we continue to see the central bank keeping monetary policy accommodative and focus towards managing yields and supporting growth for now. We expect CPI to average at 5-5.5 per cent in H1 FY22," said Sakshi Gupta, Senior Economist at, HDFC Bank.