India’s annual retail inflation in February rose at a faster than expected pace due to elevated food prices, government data showed on Tuesday (Mar 12).

Annual retail inflation eased slightly to 5.09 per cent in February from 5.10 per cent in January, but was higher than 5.02 per cent forecast by a Reuters poll of 42 economists.

Food inflation, which accounts for nearly half of the overall consumer price basket, rose 8.66 per cent in February, compared with an 8.30 per cent rise in January.

Despite retail inflation being within the mandated band of 2 per cent-6 per cent, uncertainties in food prices have worried policymakers.

Last month, the Reserve Bank of India (RBI) left its rates unchanged and signalled it would not lower interest rates until it achieves inflation of 4 per cent on a durable basis.

It expects inflation of 5.4 per cent for the current fiscal year that ends on March 31, and has projected 4.5 per cent for the next fiscal year.

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“It will take a few more months before it reaches the RBI’s 4 per cent long-term target,” said Thamashi De Silva from Capital Economics. “We think that food price inflation will drop back only slowly over the coming months.”

Core inflation, which strips out volatile food and energy prices, is estimated at 3.3 per cent-3.37 per cent in February, compared with 3.6 per cent in January, according to two economists.

The Indian government does not release core inflation figures.

Core inflation has been falling despite strong growth in India’s economy.

The economy expanded 8.4 per cent in the final three months of December, its fastest pace in one-and-a-half years. The government revised its growth estimate for the current fiscal year to March 31 to 7.6 per cent from 7.3 per cent.

“Weak core inflation at a time of strong growth is a conundrum – the only reason could be the weak input price growth. Expect a status quo on policy rates in near term,” said Devendra Kumar Pant, economist at India Ratings. REUTERS