The Reserve Bank of India’s upper tolerance level of 6% was exceeded by retail inflation in January after two months of significant increases. A three-month high of 6.52 percent was reached in January for consumer price-based inflation.
The sharp increase raises the possibility that India’s inflation concerns may not be resolved, which may lead the Reserve Bank of India (RBI) to decide to raise important interest rates once more.
Following three consecutive months of declining retail inflation, data from the National Statistical Office (NSO) released on Monday showed a strong spike in January.
Due to a substantial drop in vegetable prices, retail inflation dipped below the RBI’s upper tolerance limit for two consecutive months after exceeding 6% for the first ten months of 2022.
Retail inflation was anticipated by economists to slightly increase in January, but the data made public by the NSO today shows a larger increase than anticipated. Food prices were the main driver of the January inflation rise, which saw a rate jump to 5.94% from 4.19% in December.
It should be noticed that the inflation rate for veggies decreased to 11.70% from last month’s 15.08%. This suggests that the rate of fall in vegetable prices has been moderated.
While the inflation rate for gasoline and lighting slightly decreased to 10.84 percent, it jumped to 16.12 percent for grains in January from 13.79 percent in December.
A more pronounced increase in inflation could be a concerning sign for the Indian economy because it would not only harm the country’s sizable middle class but also impede demand development. Furthermore, because the central bank will be compelled to tighten monetary policy even further in April, it will also directly affect key interest rates.
Increased expectations of a rate hike by the central bank will cause investors to discount rising inflation, which will have a negative effect on local stock markets.
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