India's headline retail inflation rate likely rose to a four-month high in December, edging closer to the upper-bound of the Reserve Bank of India's (RBI) tolerance range of 2-6 percent.
According to a Moneycontrol survey of 18 economists, Consumer Price Index (CPI) inflation likely increased to 5.9 percent from 5.55 percent in November.
The Ministry of Statistics and Programme Implementation will release retail inflation data for December and industrial production data for November at 5:30 pm on January 12. Economists expect industrial growth, as per the Index of Industrial Production (IIP), to have slumped to 3.5 percent in November.
At 3.5 percent, November IIP growth would be the lowest in eight months.
Inflation and policy
A low base is expected to be the primary driver of inflation in December, with the general index of the CPI having contracted by 0.5 percent month on month (MoM) in December 2022 – the period on which last month's inflation number will be calculated.
The unfavourable base, as such, is seen pushing inflation higher even though prices declined MoM in December.
Also Read: Cooking at home gets 3-5% cheaper as veggies, chicken cost less
"On a sequential basis, food CPI likely fell 1.1 percent MoM, aided by a sharp correction in the prices of onions and tomatoes, and early signs of easing momentum in prices for pulses, cereals, spices and sugar – the other staples that have been driving food inflation in the past few months," said Rahul Bajoria, managing director and head of EM Asia (ex-China) Economics at Barclays.
| ORGANISATION | ESTIMATE FOR DECEMBER CPI INFLATION |
| Bank of Baroda | 5.5% |
| Barclays | 5.6% |
| L&T Finance | 5.63% |
| DAM Capital Advisors | 5.75% |
| DBS Bank | 5.8% |
| Emkay Global Financial Services | 5.88% |
| CareEdge | 5.9% |
| HDFC Bank | 5.9% |
| ICRA | 5.9% |
| Standard Chartered Bank | 5.9% |
| State Bank of India | 5.95% |
| Kotak Mahindra Bank | 5.96% |
| Sunidhi Securities | 6.00% |
| Deutsche Bank | 6.03% |
| IndusInd Bank | 6.03% |
| QuantEco Research | 6.03% |
| Motilal Oswal Financial Services | 6.3% |
| Societe Generale | 6.4% |
In November, the Consumer Food Price Index had posted a sequential increase of 1.1 percent, helping drive up food inflation to 8.70 percent from 6.61 percent in October. But with the Consumer Food Price Index also suffering from a low base – the index fell 1.6 percent MoM in December 2022 – food inflation may have risen further in the last month of 2023.
Meanwhile, core inflation – or inflation excluding food and fuel items – may have fallen below 4 percent in December.
A rise in CPI inflation in December close to 6 percent is unlikely to have much of an impact on the course of Indian monetary policy as it would mean the average for October-December would be in line with the Reserve Bank of India's (RBI) forecast of 5.4 percent, down from 6.4 percent in July-September.
"We expect the RBI to keep rates unchanged for the remainder of this fiscal. We expect a rate cut only in the first quarter of next fiscal," CRISIL said in a note on January 9.
Also Read: Another month of good CPI, IIP data but base effect muddies waters
Industrial growth
The statistics ministry will also release IIP data for November at 5:30 pm on January 12. The data is expected to show that output edged up by just 3.5 percent—the lowest in eight months—according to the estimates of 16 economists.
Industrial growth had come in at a 16-month high of 11.7 percent in October.
| ORGANISATION | ESTIMATE FOR NOVEMBER IIP GROWTH |
| ICRA | 2.2% |
| HDFC Bank | 2.8% |
| DAM Capital Advisors | 3.2% |
| Emkay Global Financial Services | 3.3% |
| Sunidhi Securities | 3.45% |
| CareEdge | 3.5% |
| DBS Bank | 3.5% |
| IndusInd Bank | 3.5% |
| Standard Chartered Bank | 3.5% |
| QuantEco Research | 3.7% |
| State Bank of India | 3.8% |
| L&T Finance | 3.9% |
| Deutsche Bank | 4.0% |
| Kotak Mahindra Bank | 4.9% |
| Motilal Oswal Financial Services | 4.9% |
| Bank of Baroda | 6.0% |
"Already, core infrastructure production growth has moderated in November to 7.8 percent," Kaushik Das, Deutsche Bank's chief economist for India and South Asia, noted.
At 7.8 percent, the November core sector growth figure was the lowest in six months and sharply lower than 12.0 percent in October. With the eight core industries—coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, and electricity—making up around 40 percent of the IIP, it is seen as a lead indicator of industrial growth data.
"Given such idiosyncrasies, we prefer comparing the average of October-November growth between 2022 and 2023 to ascertain the true momentum of the industrial sector," Das added.
The seasonal factor apart, the onset of winter also likely impacted certain types of economic activity.
"Cement output too declined in November due to the imposition of new restrictions on construction due to the increased levels of dust pollution in major metro cities," Rupa Rege Nitsure, L&T Finance's chief economist, said.
As per October IIP data, the output of construction goods rose by 11.3 percent year on year that month. However, cement output – according to core sector data – contracted by 3.6 percent in November.
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