A massive rise in food prices lifted India’s December retail inflation to a 65-month high at 7.35 percent from 5.54 percent in November, official data showed on Monday.
Economy watchers said the spike in December retail inflation came on the back of expensive food prices, as seasonal factors made vegetables and pulses dearer.
As per the data furnished by the National Statistical Office, on a year-on-year (YoY) basis, the Consumer Price Index (CPI) for December was higher than the corresponding period of last year when retail inflation stood at 2.11 percent.
Similarly, the Consumer Food Price Index (CFPI) inflated to 14.12 percent during the month under review from an expansion of 10.01 per cent in November 2019 and (-)2.65 percent rise reported for the corresponding period of last year.
In addition, the data assumes significance as the Reserve Bank of India in its last monetary policy review maintained the key lending rates on account of rising retail inflation.
The central bank is expected to keep the rates intact during the last monetary policy review for 2019-20 to be held in February.
In terms of CPI YoY inflation rate, vegetables and pulses’ prices jumped by 60.50 percent and 15.44 percent, respectively in December 2019.
Furthermore, meat and fish prices rose 9.57 percent, eggs became dearer by 8.79 percent and the overall price of food and beverages category was up 12.16 percent.
In addition, the fuel and light category under CPI rose 0.70 percent.
Last month, RBI in its monetary policy review statement had predicted the CPI-based inflation to rise in the coming quarters.
“Going forward, the inflation outlook is likely to be influenced by several factors. First, the upsurge in prices of vegetables is likely to continue in the immediate months; however, a pick-up in arrivals from the late kharif season along with measures taken by the government to augment supply through imports should help soften vegetables prices by early February 2020,” the Fifth Bi-monthly Monetary Policy Statement, 2019-20 said.
“Second, incipient price pressures seen in other food items such as milk, pulses, and sugar are likely to be sustained, with implications for the trajectory of food inflation. Third, both the 3-month and 1-year ahead inflation expectations of households polled by the Reserve Bank have risen and these latent sentiment upsides are being reflected in other surveys as well.”
The data also indicated that retail inflation has not only breached the medium-term target of the RBI to contain CPI inflation within 4 per cent but also the upper band of 6 percent.
“While vegetable prices led the spike in food inflation, prices of other food items, especially proteins, hardened appreciably as well,” ICRA Principal Economist Aditi Nayar said.
“In particular, prices of pulses may remain elevated in the coming months, despite the favourable outlook for the rabi crop. Stickiness in prices of protein items may provide a floor to food inflation going forward, even once vegetable prices correct to seasonally appropriate levels.”
Nevertheless, business body, PHD Chamber said that spike in inflation will subside soon.
“We don’t expect that the rise in inflation rate is sustainable; the average inflation should remain at around 5.5 percent for the current financial year,” D.K. Aggarwal, President, PHD Chamber of Commerce and Industry said in a statement.
“Going ahead, we look forward to the continuation of softer stance of monetary policy by RBI to spur investments and consumption demand in the coming times.”
According to M. Govinda Rao, Chief Economic Advisor, Brickwork Ratings: “CPI inflation accelerated to 7.35 percent in December 2019 and this is the highest in 65 months.”
“With the CPI inflation breaching the RBI MPC’s target of 6 percent, for the first time in the last 41 months, there is little scope for MPC to continue with monetary policy easing at least in the short term.”