Moneycontrol
Jan 12, 2018 06:57 PM IST | Source: Moneycontrol.com

December retail inflation hits 17-month high at 5.2 percent

Consumer food price inflation continued to witness a jump, with prices of food rising 4.96 percent in December from 4.42 percent in November.

Persistently high oil prices remain a key risk, to affect inflation. If inflation doesn’t deviate from current levels policy rates can be expected to remain stable.
Persistently high oil prices remain a key risk, to affect inflation. If inflation doesn’t deviate from current levels policy rates can be expected to remain stable.

India’s retail inflation hit a fresh high, growing 5.2 percent in December, mainly due to hardening housing, fuel and food prices, while inching towards RBI’s upper tolerance level of inflation at 6 percent.

Retail inflation, measured by Consumer Price Index (CPI) hit a 15-month high at 4.88 percent in November. CPI is the main price gauge that the Reserve Bank of India (RBI) tracks.

Data released by the central statistics office today showed that inflation for the month of December has already exceeded the Reserve Bank of India’s (RBI) medium term target. Last month, RBI’s Monetary Policy Committee (MPC) had forecasted that retail inflation will hover around the range 4.3 to 4.7 per cent in quarter ended December and March, higher than the previous projection of 4.2-4.6 percent.

“The rise in housing inflation is likely to be persistent, while rising crude oil prices pose another risk. However, the reversal of other transient factors such as the expected seasonal moderation in food prices may help to cool inflation,” Aditi Nayar, Principal Economist at ICRA said.

Consumer food price inflation, a metric to gauge changes in monthly kitchen costs, continued to witness a jump, with prices of food rising 4.96 percent in December from 4.42 percent in November.

Housing inflation grew 8.25 percent in December from 7.36 percent a month ago, while fuel inflation, which has seen an uptick in July, remained unchanged at 7.9 percent in December.

Food inflation remained volatile with prices falling in September and firming up from October, as eggs, vegetables, sugar and fruits became relatively more expensive.

Vegetables prices grew 29.13 percent in December as compared with 22.48 percent a month ago, while prices of pulses continued to fall (-) 23.47 percent, as compared with (-) 23.53 percent in November.

“For 12 consecutive months from November 2016 to October 2017, the CPI inflation remained below 4 percent…Given that the MPC responded to the period of transient ‘low’ inflation with only one rate cut of 25 bps in August 2017, we do not expect it to commence hiking rates unless the CPI inflation is forecast to persist above 5 percent for at least two quarters,” Nayar said.

“We expect the MPC to see through the jump in housing inflation in December 2017 in the upcoming policy review, which would be presented shortly after the Union Budget,” she added.

 
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