India’s retail inflation rate shot up to a 17-month high of 6.95% in March from 6.07% a month ago, thus remaining well above the consensus estimate for the third consecutive month. Fuel prices, which were hiked towards the end of March, are not fully recorded in the current data suggesting that inflation may remain elevated.

The surging retail inflation was led by edible oils (18.79%), vegetables (11.64%), meat and fish (9.63%), footwear and clothing (9.4%) and fuel and light (7.52%), according to data released by the Ministry of Statistics and Programme Implementation.

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Inflation in food and beverages increased to 7.46% in March 2022 against 5.93% in February.

This is the third straight month in which inflation has come in above the 6% upper limit of the Reserve Bank of India’s (RBI) mandate, averaging 6.3% in January-March. The RBI has the mandate to maintain inflation at a medium-term target of 4% with an upper tolerance level of 6% and a lower tolerance level of 2%. Accordingly, over 6% inflation in April-June and July-September will see the Monetary Policy Committee (MPC) failing to meet its mandate.

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The latest RBI’s forecast pegs average CPI inflation at 6.3% in April-June and 5.8% in July-September.

Additionally, data released by the National Statistical Office (NSO) on the index of industrial production (IIP) showed factory output grew 1.7% in February year-on-year. Sequentially, the IIP growth rate fell 4.7%, indicating economic revival is yet not on a strong footing.

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“With the MPC having signalled an imminent stance change, the rate hike cycle may begin as early as June 2022, if the next CPI inflation print doesn’t significantly cool off from the March 2022 level. We now expect to see 50-75 bps of rate hikes by the end of Q2 FY2023, followed by a pause in H2 FY2023, and perhaps another 50 bps of hikes in FY2024,” said Aditi Nayar, ICRA’s chief economist.

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In its latest monetary policy review, the RBI kept policy rates unchanged but indicated that it would now prioritise keeping inflation in control, over incentivising growth. The GDP growth forecast was revised to 7.2% for FY23 from 7.8% projected during the previous meeting in February. The inflation projection has been revised sharply from 4.5% to 5.7% for FY23.