February inflation may remain elevated

by Mahesh Vyas

The month of February 2023 has seen its ups and downs with regards to prices. Prices of many commodities that carry high weights in the CPI and/or are highly volatile have seen a downward trend. However, certain goods have seen rising prices which could hinder a fall in inflation.

Rice, which carries one of the highest weight in the CPI, after house & garage rent and milk, recorded a relatively higher price hike in February 2023. Since October 2022, rice prices have risen only marginally every month. In fact, in November, prices fell by 0.39 per cent. In January 2023, prices crawled up only by 0.09 per cent. However, in February, prices rose sharply by 1.51 per cent, to Rs.38.6 per kg. Prices of non-basmati rice have been increasing due to a drop in rice production during the kharif season. Kharif rice production for 2022-23, according to the second advance estimates released by the Ministry of Agriculture and Farmers Welfare, is expected to be 108.08 million tonnes. This is 2.92 million tonnes less than the 111 million tonnes produced in 2021-22. Basmati rice prices have soared because rice millers have been building their stocks in anticipation of price hikes in the world market due to floods in Pakistan that damaged the country’s rice produce. An additional contributor is the duty free export of rice to Nepal despite rising demand in the domestic market.

February 2023 saw an easing of prices in wheat and atta. Wheat only witnessed a 0.32 per cent increase in prices in February, compared to the 1.78 per cent increase in November 2022, 1.84 per cent increase in December 2022 and a sharp 2.59 per cent increase in January 2023. Prices of atta barely saw any increase this month. Prices rose by a mere 0.02 per cent in February, which is a great improvement from the 1.44 per cent monthly price rise in January. The slowdown in the price increase of wheat and atta follows the government’s decision in January, to sell 3 million tonnes of wheat in the open market in the span of six weeks.

Prices of potatoes have steadily fallen every month from December 2022. This is due to the seasonal fall in potato prices. Prices of potatoes have sharply fallen from Rs.23.1 per kg in January 2023 to Rs.20.8 per kg in February 2023 leading to a monthly fall of 10.15 per cent this month. In the month prior, potato prices recorded a fall of 10.80 per cent monthly. This is due to its excess supply in major potato growing states.

Similar is the case with onions. Prices have fallen since December 2022. Prices of onions eased in January 2023 with a monthly fall of only 2.51 per cent compared to the 10.71 per cent fall recorded in December. However, prices of onions fell substantially, from Rs.26.9 per kg in January 2023 to Rs.25.3 per kg in February. This is a 5.89 per cent fall. This can be attributed to a year of good monsoon that encouraged farmers in Maharashtra, Madhya Pradesh, Rajasthan, Karnataka and Gujarat to plant onions over larger areas. Unfortunately, the drastic fall in onion prices have left farmers in distress and has compelled the intervention of the central government. The National Agricultural Cooperative Marketing Federation (NAFED) has thus had to purchase large quantities of onions from farmers to stabilize the market.

Tomato prices have also seen a noticeable fall in the month of February 2023. However, compared to previous months, fall in tomato prices has eased. In November 2022, prices fell by 16.55 per cent compared to the month prior followed by a drastic 22.84 per cent monthly fall in December. In January, prices fell by 17.30 per cent. While the contraction in prices was weaker in February, it was still a considerable 4.52 per cent fall. Prices of tomatoes have also been falling in the past few months due to its excess supply. The abundance of tomatoes is caused by its early ripening due to sudden weather changes. This has been yet another cause for concern for farmers as falling prices have reportedly not allowed them to recover their costs.

Milk, which carries a large weight of 6.42 per cent in the CPI, saw prices increase by 0.46 per cent in February 2023. This follows the announcement of Amul, in early February, to hike prices of fresh milk by Rs.3 per litre due to higher operating costs. Following Amul, Mother Dairy also increased prices of full cream milk and cow milk by Rs 2 per litre each in Delhi-NCR due to rising input prices. Milk prices have been on the rise for many months now and has trickled down to the ice cream segment as well. In January, Havmor announced a hike in its prices, tailed by Hindustan Unilever in the following month. In February, Hindustan Unilever, under the brand of Kwality Wall’s announced selective price hikes.

Gold prices in the Mumbai market saw a rise in February 2023 compared to a month prior, due to a rough start in the first week of the month. However, the following two weeks saw prices ease, thus leading to a slowdown in its increase. Prices showed an incremental rise every month from October 2022. However, in February, prices only rose by 0.78 per cent monthly compared to the 4.27 per cent monthly increase in January. The reduced pace of increase in prices can be attributed to softening bullion prices in the global market, which in turn is influenced by a strong US dollar and the recent interest rate hike by the US Federal Reserve.

Crude oil prices have seen weekly as well as monthly fluctuations over the current fiscal year. The Indian basket of crude oil saw a fall in prices by 10.85 per cent in December 2022, followed by 3.41 per cent increase in January 2023. In February, there was a slowdown in price rises to 2.05 per cent a month. However, prices of petrol and diesel have been constant for many months now. This is because prices have been regulated by Public Sector Oil Marketing Companies such as Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation.

We expect the fall in prices of major vegetables and the slower rise in prices of wheat and gold to exert downward pressure on the CPI in February 2023. Milk and rice, on the other hand, have seen price hikes this month. These carry high weightage in the CPI and therefore may offset the softening impact of other commodity prices on the headline index. The CPI may even show some upward movement in February like last year. The headline inflation i.e. the year-on-year change in the CPI, however, is unlikely to change much from the 6.52 per cent rate pencilled in January 2023.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.7 +0.1
Consumer Sentiments Index
Base September-December 2015
89.0 +0.2
Consumer Expectations Index
Base September-December 2015
89.2 +0.3
Current Economic Conditions Index
Base September-December 2015
88.7 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Mar 22 Jun 22 Sep 22 Dec 22
New projects 9.01 5.29 4.50 6.84
Completed projects 1.34 1.17 1.39 1.69
Stalled projects 0.43 0.54 0.08 0.01
Revived projects 0.33 0.29 0.16 0.68
Implementation stalled projects 0.09 0.29 0.28 0.11
Updated on: 28 Mar 2023 9:28AM
Quarterly Financials of Listed Companies
(% change) Mar 22 Jun 22 Sep 22 Dec 22
All listed Companies
 Income 20.8 40.1 25.2 16.5
 Expenses 19.8 41.4 26.9 16.4
 Net profit 31.6 21.2 -1.2 6.5
 PAT margin (%) 8.8 7.2 7.6 8.3
 Count of Cos. 4,707 4,750 4,703 4,512
Non-financial Companies
 Income 24.8 50.1 27.8 14.9
 Expenses 25.7 52.9 31.2 15.5
 Net profit 10.1 8.4 -21.4 -9.1
 PAT margin (%) 7.6 5.7 5.5 6.0
 Net fixed assets 2.0 4.1
 Current assets 15.0 19.0
 Current liabilities 11.6 10.4
 Borrowings 3.6 12.4
 Reserves & surplus 11.2 6.8
 Count of Cos. 3,407 3,441 3,431 3,333
Numbers are net of P&E
Updated on: 28 Mar 2023 9:28AM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -1.1 26.6
 Expenses 0.3 -3.3 25.6
 Net profit -2.9 73.9 63.9
 PAT margin (%) 2.1 4.5 6.7
 Assets 8.9 10.8 10.0
 Net worth 4.9 11.9 14.2
 RONW (%) 3.5 7.0 11.2
 Count of Cos. 32,302 31,154 17,502
Non-financial Companies
 Income -1.0 -2.1 30.8
 Expenses -0.8 -4.0 30.4
 Net profit -19.7 61.6 61.4
 PAT margin (%) 2.3 4.0 5.8
 Net fixed assets 11.5 2.5 2.4
 Net worth 2.3 10.5 14.7
 RONW (%) 4.8 7.7 12.2
 Debt / Equity (times) 1.1 1.0 0.8
 Interest cover (times) 1.9 2.5 3.8
 Net working capital cycle (days) 74 81 62
 Count of Cos. 25,547 24,467 14,565
Numbers are net of P&E
Updated on: 27 Mar 2023 9:58AM