Retail inflation hit an eight-month high of 6.07 per cent in February, remaining above the RBI's comfort level for the second month in a row, while wholesale price-based inflation soared to 13.11 per cent on account of hardening of crude oil and non-food item prices, government data showed on Monday.
The previous high for retail inflation was 6.26 per cent in June 2021.
The consumer price index (CPI) based retail inflation, which is taken into account by the Reserve Bank of India (RBI) while deciding its monetary policy, rose mainly because of costlier food items, as per the data released by the National Statistical Office (NSO).
The RBI has been mandated by government to keep retail inflation at 4 per cent with a margin of 2 per cent on either side.
The Consumer Price Index (CPI) based retail inflation was 5.03 per cent in February 2021. It stood at 6.01 per cent in January this year.
In a different set of data released by the commerce ministry earlier in the day, the Wholesale Price Index (WPI) based inflation in February rose to 13.11 per cent due to hardening of prices of crude oil and non-food items, even though food articles softened.
On the CPI front, the rate of price rise in the food basket was 5.89 per cent in February, up from 5.43 per in the preceding month.
In this food basket, inflation in cereals moved up to 3.95 per cent; 'meat and fish' to 7.45 per cent, while for eggs, the rate of price rise was 4.15 per cent during the month.
Among others, vegetables turned dearer with an inflation print of 6.13 per cent, and for spices it rose to 6.09 per cent. In fruits, the inflation remained static at 2.26 per cent when compared to the preceding month.
In 'fuel and light', inflation softened to 8.73 per cent as against 9.32 per cent in January.
Notably, RBI has not changed the key policy rate after May 2020, citing inflationary concerns and to support growth.
WPI inflation accelerated in February and remained in double digits for the 11th consecutive month, beginning April 2021.
It was 4.83 per cent in the same month a year ago and 12.96 per cent in the preceding month, January 2022.
The rise in crude oil and natural gas prices after the Russian invasion of Ukraine, beginning February 24, has put pressure on the wholesale price index, even though food articles saw softening across categories of vegetables to pulses and protein-rich items.
Bank of Baroda Economics Research said, "With geopolitical uncertainty and commodity prices still remaining fairly elevated, we believe inflation to be above 5.5-6 per cent in FY23, which is higher than RBI's projection of 4.5 per cent."
Global food prices are also on an upswing.
Thus, the pass through to wholesale and retail inflation is yet to be fully materialised.
RBI should take into account of these factors in its upcoming policy, when globally central banks are reiterating their concerns of inflation overheating, it added.
The RBI has retained the retail inflation projection for 2021-22 at 5.3 per cent, with January-March quarter of the fiscal at 5.7 per cent on account of unfavourable base effects that ease subsequently.
The central bank has projected the retail inflation for 2022-23 at 4.5 per cent.
"With no change telegraphed so far, and the uncertainty stemming from the impact of the Russia-Ukraine conflict, we expect another status quo policy in April 2022, despite the February 2022 CPI inflation print exceeding 6 per cent.
"However, anchoring of inflationary expectations may warrant a less dovish tone of the policy document," Aditi Nayar, chief economist at ICRA, stated.
Nikhil Gupta, chief economist at Motilal Oswal Financial Services, said although inflation was slightly higher and will likely be higher than RBI forecasts of nearly 4.5 per cent, it is unlikely to lead to any interest rate action next month.
"We don't expect more than 90 bps (0.9 percentage) rate hike in reverse repo rate (or 50bps hike in repo rate) in FY23," Gupta said.
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