India's retail inflation measured by the Consumer Price Index (CPI) eased marginally to 6.44% year-on-year in February as compared with 6.52% in January, staying above the Reserve Bank of India's (RBI) upper threshold limit of 6% for the second straight month.

While urban inflation rose to 6.1% in February from 6% in January, rural inflation declined to 6.72% in February from 6.85% in January, according to data released by the Ministry of Statistics & Programme Implementation.

Food inflation stood at 5.95% in February as against 5.94% in January. Inflation rate for vegetables contracted 11.6% in February against a contraction of 11.7% in the previous month. Inflation rate for cereals and products rose 16.73% while that for milk and products jumped 9.65%. Inflation rate for spices soared 20.20%.

Fuel and light inflation rose 9.9% in February as compared with 10.84% in January. Inflation rate for the clothing and footwear segment rose 8.79% in February, down from 9.08% in January.

The Reserve Bank of India's Monetary Policy Committee last month hiked the key repo rate to 6.5% to control rising inflation in the country.

According to India Ratings and Research (Ind-Ra), elevated temperatures across India could not only affect the country's agricultural output but also keep inflation at elevated levels. The ratings agency expects retail inflation to stay firm at around 6.5% due to sticky food & beverages and core inflation in February 2023. The agency believes that the retail inflation trajectory would be impacted by the likely decline in wheat production, an uptick in vegetable prices and stickiness in core inflation.

The forecast comes at a time when the India Meteorological Department (IMD) has warned of the plausibility of severe heat waves during March-May 2023. The March to May period is going to be hotter than usual, with enhanced probability of occurrence of heatwave over many regions of Central and adjoining Northwest India.

At the MPC meeting in February, RBI governor Shaktikanta Das said that pausing the repo rate hike would be "premature". Das, along with other MPC members Shashanka Bhide, Rajiv Ranjan, Michael Debabrata Patra, voted to increase the policy repo rate by 25 basis points while Jayanth Varma and Ashima Goyal voted against the rate hike.

MPC member Varma, who is a professor at the Indian Institute of Management, Ahmedabad, said that India's monetary policy has become complacent about growth and the country may pay the price for this in terms of unacceptably low growth in 2023-24. "In the second half of 2021-22, monetary policy was complacent about inflation, and we are paying the price for that in terms of unacceptably high inflation in 2022-23. In the second half of 2022-23, monetary policy has, in my view, become complacent about growth, and I fervently hope that we do not pay the price for this in terms of unacceptably low growth in 2023-24," Varma said.

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