India’s Retail Inflation surges to a 4-month high; but under RBI tolerance
India’s retail inflation hit a marginal four month high of 5.69% in December 2023 as per the data released by National Statistic Office (NSO) under the Ministry of Statistics and Programme Implementation (MoSPI) in January 2024. A surge in inflation was witnessed from 5.5% in November but still remained under the RBI tolerance of 2–6%. It was 5.72% in December of 2022. The most recent CPI inflation rate stands at 5.69 percent, falling short of forecasts. Economists had anticipated a December year-on-year price increase of around 5.9 percent.
In December, inflation was primarily influenced by an unfavourable base effect, while the pace of price increases, as measured by the month-on-month change, slowed. In December, the annual food inflation rate, as measured by the Consumer Food Price Index, rose to 9.53 percent, up from 8.70 percent in November and 4.19 percent a year earlier. In December, urban areas experienced double-digit food inflation at 10.42 percent, while rural areas saw 8.49 percent. In December, the inflation rates for vegetables surged to 27.64 percent from 17.70 percent in November, while pulses and spices saw their inflation rates rise to around 20 percent, specifically 20.73 percent and 19.69 percent, respectively. Cereal inflation remained high at 9.93 percent, although slightly lower than November’s 10.27 percent.
While Urban Inflation touched a high of 10.4%, the core inflation, which excludes food and fuel, fell to the lowest level since the pandemic. Price momentum slowed not only in food but also in other categories. In December, the housing price index, which accounts for 10% of the consumption basket. Similarly, the price indices for clothing and footwear, fuel and light, and miscellaneous items all saw modest increases of 0.2 percent over November. “It aligns with expectations, particularly with goods inflation leading at 9.5 percent. Pressure points persist in items like pulses, vegetables, and fruits, which are expected to alleviate only with increased supplies. Additionally, personal-care products and healthcare still face cost-related challenges. These headline figures are in line with RBI projections, suggesting a status quo for an extended period”, said Soumyajit Roy, Head of Wealth, State Bank of India
While comparing state-wise data, Odisha showed an alarming 8.73 inflation rate, while the Union territory of Delhi remained well below at 2.95%.
Forward Outlook
In its last five meetings, the Monetary Policy Committee which regulates interest rates has maintained the policy repo rate at 6.5 percent, reiterating its dedication to bringing inflation in line with the 4 percent target.
“In the upcoming period, we anticipate a notable moderation in CPI inflation to approximately 5.2 percent in January, driven by a reduction in food inflation attributed to an unfavorable base effect. Despite this, the possibility of rate cuts seems remote and is not expected to materialize before August. A change in stance is foreseen at the policy meeting preceding that,” Roy added.
