Why retail inflation pinched less despite remaining above 5% in December

Retail inflation pinched less in December

Despite remaining above the 5 percent mark in December, retail inflation likely pinched less than the previous month, according to a Moneycontrol analysis.

While India’s consumer inflation eased to 5.2 percent in December from 5.5 percent the previous month and 6.2 percent in October, it remained above 5 percent for a fourth consecutive month.

However, a Moneycontrol analysis shows that 75 of 299 items witnessed a sequential decline in prices in December compared with 60 in November.

In terms of weightage, over a quarter (25.7 percent) of the items tracked by the government witnessed deflation compared with 16 percent in the previous month.

December marks the first time in 10 months that around 75 items witnessed deflation.

Further analysis shows that most of these items were in the food basket. The average deflation in pulses was 0.7 percent, while vegetable products witnessed an average deflation of 7 percent.

Potato, onion and tomato witnessed an average deflation of over 10 percent.

In services, prices of gold, silver and ornaments declined 0.6 percent, while tuition fees and other educational expenses dipped 0.4 percent.

Not only did more items face deflation, but fewer items witnessed over a 1 percent increase in prices from the previous month.

Analysis shows that the share of items facing over 2 percent inflation declined to a 11 month low of 3.4 percent from 5.3 percent in the previous month.

Of the 12 items that faced over 2 percent increase in prices, eggs, cooking oil, flowers and air fares were the major contributors.

Egg prices were up 5.3 percent over the previous month, while air fares were up 2.3 percent.

Experts are, however, divided on the likely trajectory of rates despite prices cooling off. While some believe that the 5 percent annual print will deter RBI from cutting the policy rate, others say that declining food inflation and falling economic growth could be a cause enough for a cut in the February meeting.