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Perspective on February CPI Data by Ms. Shilpa Shree Venkatesh - Lead Consultant, Knight Frank India

“Consumer inflation continues to remain stubbornly high at 6.4% in Feb 2023 with price pressure remaining elevated broadly across - food, fuel and core categories. Food prices, primarily the cereal prices continue to surge, having been increased by 17% YoY in Feb’23.

 Although, at the wholesale level, inflation has significantly reduced, the quantum of reduction is not transferred into consumer prices yet, as core inflation continues to remain sticky at around 6%. Core inflation along with rise in prices of household goods such as clothing & footwear, fuel etc would more likely shrink the disposable incomes of the households which could soften consumer demand.

 So far in FY23, private consumption growth moderated in Q3 FY23 owing to sharp inflationary pressure, which averaged at 7% during the period.

 At the current levels, elevated consumer inflation widens the scope of the RBI to hike the key policy rate in its next MPC meeting. However, since most of the price pressure at consumer level is arising from food inflation, which is more sensitive to seasonal factors, there is a less scope of softening inflation due to any further rate hikes. Rather a combination of increase in consumer prices along with a further rise in interest rate could be a double whammy to domestic economic growth.

 So far in FY23, inflation has averaged at 6.8%, 200bps higher than the 5-year average witnessed between FY17-22. In response to high inflation, the RBI has hiked the repo rate by 250bps to 6.5% in FY23.”

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