Retail inflation breached the RBI’s upper tolerance limit and touched a three-month high of 6.52 percent in January, mainly due to higher prices in the food basket, including cereals and protein-rich items.

Except for November and December 2022, retail inflation has remained above the RBI’s upper tolerance level of 6 percent since January 2022. The retail inflation based on the CPI was 5.72 percent in December and 6.01 percent in January 2022. The previous high was 6.77 percent in October. While the prices of vegetables declined in January, most of the other items, including ‘fuel and light’ became dearer. The rate of price rise in the food basket was 5.94 percent in January, up from 4.19 percent in the preceding month and 5.43 percent in the year-ago month, as per data released by the NSO. The inflation in rural areas was higher at 6.85 percent as compared to 6 percent in urban centers. The RBI has projected retail inflation at 6.5 percent in 2022-23, with the January-December quarter at 5.7 percent.

Headline CPI inflation moderated by 105 basis points during November-December 2022 from its level of 6.77 percent in October 2022. Last week the RBI said that this was due to a softening in food inflation on the back of a sharp deflation in vegetable prices, which more than offset the inflationary pressures from cereals, protein-based food items, and spices. It also said the ongoing pass-through of input costs, especially in services, could keep core inflation at elevated levels.