Economy
Inflation eases in February, but one-fifth of items still record steep price rises
Summary
While the number of items recording more than 6% inflation has also come down, 20% of the inflation basket is still recording high inflation, with coconut oil recording as much as 54.48% inflation and gold 35.56%.
Inflation may have finally eased to below 4.0% in February, thanks to a continued correction in vegetable items, but high inflation in several items may continue to pinch consumers. A Mint analysis of item-wise inflation shows that despite the headline inflation easing to 3.61% in February, over one-fifth of the items in the basket still recorded inflation above 6%.
Inflation has eased for four consecutive months now as food prices, particularly those of vegetables, corrected in recent months. The sharper-than-expected easing (Mint poll pegged it at 3.9%) in February can be attributed to the first deflation for vegetables since June 2023. After touching a recent high of 42.23% in October 2024, vegetables recorded -1.07% in February, in line with seasonal correction in prices on arrival of new crops in the market.
While the number of items recording more than 6% inflation has also come down, 20% of the basket is still recording high inflation, with coconut oil recording as much as 54.48% inflation and gold 35.56%. “While overall disinflation is evident, core inflation (excluding food & fuel) edged up to 4%, suggesting persistent price pressures in certain segments. The biggest driver here was gold prices," said Arsh Mogre, an economist at Institutional Equities, PL Capital (Prabhudas Lilladher).
Among the items, which had over 0.5% weightage in the basket, gold topped the list in February. Interestingly, despite the overall vegetable recording deflation, potato and onion recorded double-digit inflation in February. The effect of custom duty hike on edible oils was also visible, with these items also recording double-digit inflation.
“The prices of edible oils remain a key monitorable, especially given the contraction in sowing of oil seeds, an increase in global edible oil prices and import dependency in this category," said Rajani Sinha, chief economist at CareEdge Ratings.
Even as food inflation fell sharply to 3.75% in February from 5.97% the previous month, inflation for wheat increased to 9.17% in February from 8.80% the previous month.
While high inflation in these items may be painful for consumers, the Reserve Bank of India’s Monetary Policy Committee (MPC) will deliver its decision based on the headline inflation, which is its main target. Since inflation has come below 4% for the first time without base effect in over five years, it helps make a strong case for a rate cut next month. The average inflation for January-February is 3.9%, lower than the RBI’s projection of 4.4% for January-March quarter. Even if inflation rises to 5% in March, the RBI’s projection will not be breached.
“We expect 25 bps rate cut each in April and June policy along with a shift in the stance to accommodative. Beyond June, we continue to monitor the downside risks to growth to decipher room for additional rate easing," said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.
