A roadside vendor sells eatables during the Shivarathri festival on the outskirts of Bangalore on Thursday. Agence-France-Presse

With growing food and fuel prices, India’s retail inflation increased in February as the Consumer Price Index rose to 5.03 per cent against 4.06 per cent in January.

The consumer food price index was at 3.87 per cent in February, in a steep rise from 1.96 per cent a month ago, showed data from the Ministry of Statistics & Programme Implementation.

The latest data gains significance as the February CPI is the last CPI inflation print before the RBI’s monetary policy review.

The combined inflation rate for food and beverages was at 4.25 per cent and that of pan, tobacco and intoxicants was at 10.70 per cent in February 2021.

As per the official data, the inflation rate for fuel and light was at 3.53 per cent.

Retail prices of petrol and diesel have hit record highs across the country in the past couple of months in line with the rise in global crude oil prices, affecting the common man.

Pump prices of the transport fuels have been unchanged for around 13 days now at record high levels ahead of the upcoming Assembly polls.

Radhika Rao, Economist at DBS BANK, Singapore said,”Improving growth expectations and firm crude prices are complicating monetary policy expectations. The one-year implied rate has risen this year, as have 5-year overnight index swaps, as markets build policy tightening risks. Bounce in February’s inflation ... adds to this debate. Much of the increase stemmed from a sequential uptick in staple vegetables and commodity price pressures. With part of the pass-through also seeping into services (transport), core inflation hardened to 5.9% y/y, spurred also by a return in the demand impulse and return in producers’ pricing power.”

Kunal Kundu, India economist, Societe Generale, Bengaluru, said, “while the low statistical base effect is partly responsible for this uptick, there are telltale signs of price pressures building up, notably through petro (petroleum) product prices bus and airfare segment. Price pressure is also building up from manufactured product price (driven by a sharp rise in commodity prices) and house price channel. Continued stickiness of core inflation adds to the concern. Also, despite weak business, recreation and amusement prices continue to move up as service providers’ needs factor in rising costs to prepare for the pandemic-engendered new normal. If the underlying price pressure continues to remain elevated even when the base effect normalises, there is a high possibility of RBI opting for a rate hike sooner than we expect.”

 Indian shares lower: Indian shares gave up early gains to end sharply lower on Friday, as high-flying financial stocks sold off on the back of a broader rise in bond yields in the US and Europe.

The blue-chip NSE Nifty 50 index fell 0.95% to close at 15,030.95, while the benchmark S&P BSE Sensex shed 0.95% to end at 50,792.08. Despite today’s losses, both indexes notched their second consecutive weekly gain.

The Nifty and Sensex gained as much as 1.06% each earlier in the day but fell into the red, in line with global markets whose earlier rally on the signing of a US stimulus bill was halted by rising bond yields and inflation concerns.

“At these elevated levels, the (domestic) indexes are exposed to any triggers globally,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services in Mumbai.

High commodity prices and crude oil prices remain concerns on the domestic front, Khemka added.

Investors are awaiting retail inflation data for February later in the day. A Reuters poll showed retail inflation probably rose but remained within the central bank’s target range.

In Mumbai, the Nifty Bank Index fell 1.23%. ICICI Bank Ltd was among the top drags to the Nifty 50, shedding 2%.

“Banks would have the biggest impact if bond yields are going up...they are also the biggest segment of the market in terms of weightage, foreign institutional investor holdings,” Khemka said.

Tata Power Co Ltd ended 5.5% higher, after news channel CNBC-TV18 reported the power generation and transmission company is exploring an arrangement with Tesla Inc for setting up charging infrastructure.

IDBI Bank Ltd closed 9.8% higher. India’s central bank said on Wednesday it would take the state-run lender out of its corrective action list.

Separately, low domestic prices raked in demand for physical gold in some Asian hubs this week, with fresh retail interest also allowing dealers to charge higher premiums in India.

Local gold futures in India traded around 44,400 rupees per 10 grams on Friday, near a one-year low of 44,150 rupees they touched earlier in the week.

“Retail demand has been gaining momentum. Showrooms, especially in small towns, are witnessing good footfalls,” said Amit Modak, chief executive officer at jeweller PN Gadgil and Sons.