Inflation Touches 7 Months’ High…

The CPI based inflation continued to harden and breached the RBI’s target range of 2% to 6%. The headline inflation for the month of Jan’22 came in at 6.01% as compared to 5.66% in the preceding month and 4.06% during the year ago period. The rise in inflation was mostly attributable to an unfavourable base effect. The core inflation remained largely stable and came in at 5.96% for the month of Jan’22 as compared to 6.01% in the preceding month.

The Consumer Food Price (CFP) inflation moved higher from 4.05% reported in the month of Dec’21 to 5.43% for the month of Jan’22. As was the case last month, the rise in CFP inflation was largely due to the adverse base effect. Thus, even as the components of the food basket are losing price momentum the headline YoY numbers indicated hardening inflation. On a sequential MoM basis, the CFP inflation was negative 1.32%. The key components within the food basket that have contributed to inflation on a YoY basis are oil & fats, non-alcoholic beverages, and prepared meals. The prices of pan, tobacco and intoxicants component continued to ease, and the inflation was reported at 2.45% in Jan’22. The inflation for Clothing, Fuel & Light, Housing and Miscellaneous was reported at 8.84%, 9.32%, 3.52% and 6.55% respectively.


As the risks of Russian invasion of Ukraine escalated, oil prices witnessed a sharp spike due to supply concerns. The invasion and the resultant sanctions may disrupt the supply coming in from one of the largest producers. The risks to supply amid recovering demand may put further pressure on oil prices. The oil prices are expected to remain volatile, and the near-term outlook would be dependent on the geopolitical developments. The factors that may provide a cap to the oil prices are, the spare capacity available with OPEC+ and the additional supplies coming in from US.


The core inflation remained stable in the month of Jan’22. The core inflation came in at 5.96% for the month of Jan’22 as compared to 6.01% seen in the preceding month. The Pan, Tobacco and Intoxicants inflation has remained subdued for the past few months on the back of a positive base effect. The impact of improving discretionary spends is visible in clothing & footwear and may impact the intoxicants component going ahead. Along with an improving demand, this may also be indicative of manufacturers passing-on the input cost pressures to consumers.


As discussed earlier the impact of adverse base effect was visible in the headline numbers. The base effect has nullified the impact that the easing momentum of food inflation would have had on headline numbers. As the base effect wanes the headline numbers may ease and be back within the RBI’s target range. The rise in inflation is not expected to have any impact on the monetary policy; the recent MPC meeting outcome reiterated the fact that the policy stance is dictated by the growth trajectory at the current juncture. The near to medium term outlook on inflation may be governed by the movement of global oil prices coupled with the government’s decision whether to hike prices or adjust the taxation. The second critical factor would be the strength of the demand recovery and the resultant pricing power of manufacturers.



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