Retail Inflation in February 2022

March 17, 2022

According to the data released by the Ministry of Statistics & Programme Implementation (MoSPI), India’s retail inflation surged to 6.07% in February.

About the surge in inflation

Retail inflation is measured by the Consumer Price Index (CPI). February’s retail inflation of 6.07% is over and above the Reserve Bank of India’s (RBI) threshold of 6%. In January retail inflation was 6.01%. Thus, this is the second consecutive month that the Consumer Price Index (CPI) data has crossed the Reserve Bank of India’s (RBI) upper threshold of 6%.

Inflation targeting framework of RBI

In 2016, a statutory basis was provided for the implementation of the flexible inflation targeting framework by amending the Reserve Bank of India (RBI) Act, 1934.
According to the amended Reserve Bank of India (RBI) Act, 1934, the Central Government in consultation with RBI should determine the inflation target in terms of a consumer price index (CPI), once every five years.
In this regard, on March 31, 2021, the Centre notified that the inflation target for the next five-year period (April 1, 2021, to March 31, 2026) will be 4% with a margin of 2% on either side.
That means the upper tolerance limit is 6% & lower tolerance limit is 2%.
The RBI has the mandate to ensure that the retail inflation is within the prescribed range.

Failure in achieving the Inflation target

The following factors constitute failure in achieving the inflation target:

When the average inflation is more than the upper tolerance limit for any three consecutive quarters.
When the average inflation is less than the lower tolerance limit for any three consecutive quarters.

About Consumer Food Price Index (CFPI)

According to the MoSPI data, the Consumer Food Price Index (CFPI), or the inflation in the food basket surged from 5.43% in January to 5.85% in February. The rise in Consumer Food Price Index (CFPI) was due to a surge in prices of oils and fats. Prices of vegetables also saw a rise of 6.13% while the meat and fish segment rose 7.45%.

According to the data released by the Ministry of Commerce & Industry, the wholesale price-based inflation (WPI) in February stood at 13.11%.

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