During February, retail inflation, as measured by the consumer price index, touched a three-month high of 5%. Inflation during a month is the rate of price rise in comparison to the same month in the previous year. Retail inflation had stood at 4.1% in January. A major reason behind accelerating inflation has been the rise in petrol and diesel prices for vehicles, which rose by 20.6% and 22.5%, respectively. Petrol and diesel prices have been rising on account of higher oil price. The price of the Indian basket of crude oil stood at $67.4 per barrel as of 11 March, a little more than double the average price for March 2020, which was at $33.4 per barrel. India imports the bulk of the oil that it consumes.
The import dependency during 2020-21 has been at 84%. Also, the central excise duty collected by the government on petrol and diesel sold has gone up during the course of this financial year, and now stands at ₹32.90 per litre in case of petrol and ₹31.83 per litre in case of diesel, respectively. This increase in petrol and diesel prices has added to the overall increase in prices. In fact, core inflation, which excludes food and fuel inflation, for the month of February stood at 6%. This is the highest since June 2018, when core inflation stood at 6.1%.
Also, this inflation is the second-highest in the last five years. It needs to be clarified here that the core index includes the petrol and diesel prices for vehicles. These items are a part of the transport index and not the fuel index, as is commonly believed. If we leave out the petrol and diesel prices for vehicles and other fuels for vehicles, along with the food items and fuel and light items, inflation stood at 5.5% in February, as it had in December and January, as well. What this tells us is that inflation has become sticky. Higher prices for petrol and diesel increase the cost of moving things from where they are produced to where they are consumed, and hence, over a period of time have an impact on prices of everything else, including food.