India’s retail inflation reversed its downward trend in January and once again breached the central bank’s upper tolerance limit of 6 per cent after a gap of two months, forcing some analysts to project another rate hike by the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) in April. Data released by the National Statistical Office on Monday showed the Consumer Price Index-based inflation rate rising unexpectedly to a three-month high at 6.52 per cent in January, from 5.72 per cent in December, as goods across categories, including food and beverage, housing, and services, saw price rise, with food prices leading the chart. Core inflation, which excludes food and fuel prices, remained sticky above the 6 per cent mark.

The upside inflation surprise came days after the RBI revised down its January-March quarter retail inflation forecast by 20 basis points (bps) to 5.7 per cent. The MPC hiked the repo rate by another 25 bps, while cautioning that further calibrated monetary policy action is warranted to keep inflation expectations anchored, break the persistence of core inflation, and thereby strengthen the medium-term growth prospects. Abheek Barua, chief economist at HDFC Bank, said it is clear that the inflation fight is not over yet and the moderation seen at the end of 2022 was neither broad-based nor durable. “If indeed the RBI’s yardstick of durable disinflation is the movement in core inflation, the terminal policy rate could be higher than what the market currently expects.

This print reaffirms our view that the RBI is likely to raise rates again in its April policy, with no change in stance likely,” he added. Madan Sabnavis, chief economist at Bank of Baroda, expects inflation to remain elevated in the next two months, although there will be moderation in the headline number. “The RBI’s decision and stance remain vindicated by this number and it would be fair to surmise that if inflation remains above the 6 per cent mark in the next couple of months, there could be further rate hike, although it is a low probability as things stand,” he added. Food inflation rose to a three-month high of 5.94 per cent in January, from 4.19 per cent in December, due to acceleration in the inflation rate of cereals, protein-rich items like eggs and meat, milk, vegetables, fruit, pulses, spices, and edible oil. Spices (21.1 per cent) and cereals (16.1 per cent) continue to face double-digit inflation, followed by milk (8.79 per cent), eggs (8.78 per cent) and meat (6.04 per cent).

However, vegetables (minus 11.7 per cent), sugar (0.9 per cent), edible oil (1.4 per cent), and fruit (2.9 per cent) faced lower inflation in January. Services inflation, which includes health, education, transport and communication, recreation, and personal care, increased to a five-month high of 6.21 per cent, from 6.17 per cent in December. Sunil Kumar Sinha, principal economist at India Ratings - Research, said notwithstanding the open market sale of 3 million tonnes of wheat by the government, the market prices haven’t tapered off. “The decision to sell wheat at Rs 2,350 per quintal to bulk users through e-auction can have some impact on open market wheat price.

The wheat prices can cool off from here due to a combination of open market sales and higher wheat production than last year,” he added. Aditi Nayar, chief economist at ICRA Ratings, said that the broad-based sequential fall in prices of several food items in early February this year, as well as a high base, should dampen the food inflation print below 6 per cent. “Besides, the 3.3 per cent rise in acreage has brightened the rabi output prospects, amid early sowing, improved fertiliser availability, and healthy reservoir storage, offering some relief,” she added.