Wholesale inflation in India based on the Wholesale Price Index continued to moderate and was at 3.85 per cent (provisional) in February 2023, against the previous month’s 4.73 per cent, official data showed on Tuesday.
Overall wholesale inflation was at 8.39 in October and has been falling since then. Notably, the wholesale price index (WPI)-based inflation had been in double digits for 18 months in a row till September. Meanwhile, retail inflation in India fell marginally but remained above RBI’s 6 per cent upper tolerance band for the second straight month in February 2023, with the Consumer Price Index pegged at 6.44 per cent, government data showed Monday.
Further, Consumer Food Price Index in February was 5.95 per cent, data showed. Retail inflation for vegetables, however, declined 11.61 per cent, but in January retail inflation was 6.52 per cent.
India’s retail inflation was above RBI’s 6 per cent target for three consecutive quarters and had managed to fall back to the RBI’s comfort zone only in November 2022.
Under the flexible inflation targeting framework, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row.
Since May last year, the RBI has increased the short-term lending rate by 250 basis points, including the latest 25 bps hike, to tame inflation. Raising repo rate helps in cooling demand in the economy and thus helps in managing inflation.
Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.