Food prices, which account for nearly 40 per cent of the CPI basket, rose 5.95 per cent in February. Image Credit: Shutterstock

New Delhi: India’s annual retail inflation eased to 6.44 per cent in February, helped by a fall in the price of some food items, but remained above the central bank’s target, reinforcing expectations for a further interest rate hike at its meeting next month.

The February reading was higher than the 6.35 per cent forecast by economists in a Reuters poll, and was above the upper band of the Reserve Bank of India’s (RBI) 2-6 per cent target, data released by the National Statistics Office on Monday showed.

Annual retail inflation was 6.52 per cent in January.

Economists said food inflation could remain high for the next few months, with El Nino conditions predicted in 2023, while sticky core inflation, excluding volatile food and energy prices, provided little room to absorb higher food prices.

“This print strengthens the case for another 25 bps rate hike by the RBI in the next policy,” said Sakshi Gupta, economist at private lender HDFC Bank, adding further rate hikes post April could not be ruled out now.

The RBI has raised its benchmark repo rate by 250 basis points (bps) since May last year.

The RBI’s Monetary Policy Committee will meet from April 3 to 6.

Food prices, which account for nearly 40 per cent of the CPI basket, rose 5.95 per cent in February, compared with 6 per cent in January, as edible oil and vegetable prices eased.

Indian consumers have not benefited much from a fall in international crude oil prices as the state-run oil companies have kept retail petrol and diesel prices on hold to partly recover their earlier losses.

Fuel retail prices rose 9.90 per cent year-on-year in February from 10.84 per cent in the previous month, the data showed.

Excluding the volatile food and energy components, core inflation rose between 6.05 per cent and 6.12 per cent last month, according to three economists’ estimates, compared with between 6.09 per cent and 6.10 per cent in January.

A Reuters poll suggested retail inflation would not reach the RBI’s medium-term target of 4 per cent by the end of next year, and that could force the central bank to continue its aggressive tightening cycle, hurting economic growth.

India, the world’s fifth-largest economy, is expected to grow around 6.5 per cent annually in the next financial year starting in April, compared with an estimated 7 per cent in the current financial year.