CHENNAI: In a shocker, consumer price index (CPI) inflation crossed 6.5 percent in January, the Ministry of Statistics & Programme Implementation said on February 13, after being 5.7 percent in December and 5.8 percent  in November 2022, and economists termed it "worrisome".

"It is concerning and worrying that CPI inflation in January increased to 6.5%, exceeding our forecast. As food inflation and core inflation remained strong, inflation sequentially ended a two-month contractionary skid " Rajani Sinha, Chief Economist at CARE Ratings said.

The lead economist of Emkay Global Financial Services, Madhavi Arora, said that "today's inflation shocker, led by food, as well as continually increasing core inflation trend, has indicated we are far from the 'lasting disinflation' process."

While vegetable costs decreased for the third consecutive month, according to Sinha, the momentum was insufficient to offset the steep increase in basic commodities including cereals, meat, fish, milk, and eggs.
"From 37% in December, food inflation's share of overall inflation increased to 44% in January. While housing, personal care, and healthcare inflation increased, core inflation remained stable at 6.3%" she  added.
Sinha claims that while overall CPI inflation is anticipated to moderate to 5.1% in FY24 as a result of falling prices for grains and pulses, the sticky core inflation would continue to be a concern.
The current tightening of monetary policy and some evaporation of pent-up demand should also aid lower CPI inflation.

"After the RBI reduced its 4QFY23 CPI forecast downward by 20-bps in the most recent MPC policy, there was an upside inflation surprise. This demonstrates how unpredictable the inflation trajectory can become, even for short-term projections, and may help to explain why they have maintained their current attitude of withdrawing support in order to maintain policy flexibility" said Arora.

She claims that the inflation rate for Fourth Quarter FY23 may now be as much as 50 basis points higher than the RBI's updated projection, which might also prompt the RBI to further tighten its policy going forward.

"From a policy standpoint, we think that additional rate increases are improbable. We should exercise caution, though, as the Reserve Bank of India (RBI) has left the door open to the prospect of another rate increase in the event of a persistent increase in inflation " Sinha added.

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