High fuel prices push March consumer price inflation to a 5-month high of 3.81%

Consumer price inflation in India rose at an annual rate of 3.81 per cent in March 2017, the fastest pace since October 2016, on the back of higher fuel prices.

Consumer price inflation (general - urban and rural combined) had grown at a slower pace of 3.65 per cent in February, data released by the ministry of statistics showed.

Consumer price inflation based on fuel prices accelerated to 5.56 per cent from 3.90 while gains in food prices slowed to 1.93 per cent from 2.01 per cent.

Reserve bank of India (RBI) had kept its policy repo rate unchanged consecutively for a third time amid concern about price pressures. RBI had feared a possible spike in food prices, should India experience below-average monsoon rains this year

Instead, RBI raised the reverse repo rate – the return on banks' deposits with the RBI – by 25 basis points in a bid to mop up more from banks and squeeze liquidity.

Provisional data show consumer price inflation for rural areas stood at 3.75 per cent in March 2017 while it was 3.88 per cent for urban areas. CPI inflation stood at 5.70 per cent for rural areas and 3.95 per cent for urban areas in March 2016.

Food price inflation for rural areas stood at 1.85 per cent in March 2017 while it was 2.27 per cent for urban areas.  Food price inflation stood at 5.79 per cent for rural areas and 3.98 per cent for urban areas in March 2016

Cost-push pressures, meanwhile, are building due to higher global commodity prices.

While remaining committed to keeping retail inflation closer to the lower end of its target, the central bank will be hard pressed to overlook growth concerns.

The rollout of a new sales tax from July as also the hike in house rent allowance to government sector employees pose an upside inflation risk.

The central bank's monetary policy panel expects the latter to push up headline inflation by as much as 150 basis points over a period of 12-18 months.