India's headline retail inflation rate slumped to an 11-month low of 5.88 percent in November from 6.77 percent in the previous month, data released on December 12 by the ministry of statistics and programme implementation showed.
At 5.88 percent, the latest Consumer Price Index (CPI) inflation print is well below the consensus estimate. As per a Moneycontrol poll, inflation was seen falling to 6.4 percent.
The fall in inflation in November follows a similar drop in October, allowing it to fall below the 6 percent upper bound of the Reserve Bank of India's (RBI) 2-6 percent tolerance band for the first time in 2022.
As for the medium-term target of 4 percent, CPI inflation has exceeded it for 38 months in a row.
The sharp fall in inflation will come as a huge relief to the RBI, which has been on a rate-hiking spree since May.
Last week, the central bank's rate-setting panel increased the policy repo rate by 35 basis points to 6.25 percent, taking the total quantum of rate hikes to 225 basis points since the start of May.
One basis point is equal to one-hundredth of a percentage point.
Meanwhile, CPI inflation has now fallen by 153 basis points after hitting 7.41 percent in September.
Inflation internals
The fall in inflation in November was driven by a sharp drop in food inflation, which plummeted to 4.67 percent from 7.01 percent in October.
| NOV 2022 INFLATION | CHANGE IN INDEX, NOV 2022 vs OCT 2022 | |
| CPI | 5.88% | -0.1% |
| Food | 4.67% | -0.9% |
| Cereals | 12.96% | 1.3% |
| Meat, fish | 3.87% | -0.7% |
| Oils, fats | -0.63% | 1.3% |
| Vegetables | -8.08% | -8.3% |
| Pulses | 3.15% | 0.4% |
| Clothing, footwear | 9.83% | 0.6% |
| Housing | 4.57% | 0.3% |
| Fuel, light | 10.62% | 0.4% |
| Miscellaneous | 6.07% | 0.4% |
Vegetables were key in driving food inflation down, with the index falling 8.3 percent in November from October.
Crucially, the food index of the CPI fell 0.9 perceng month-on-month in November, indicating moderation in prices.
Meanwhile, fuel inflation edged up to 10.62 percent from 9.93 percent.
Core inflation, or inflation excluding food and fuel items, was up roughly 10 basis points from October at 6.1 percent.
Last week, the Monetary Policy Committee (MPC) had expressed concern about core inflation staying sticky around 6 percent. According to Governor Shaktikanta Das, the MPC had "placed it (core inflation) on the table as this also needs to be specifically addressed and kept in mind when we are decomposing and breaking up our inflation analysis".
Overall, the general index of the CPI was down 0.1 percent in November from October.
Policy impact
While the unexpectedly low inflation print will be music to policymakers' ears, economists think the MPC is nearly at the end of its tightening cycle.
After December 7's rate hike, many think a final rate hike may occur in February days after Finance Minister Nirmala Sitharaman presents the Budget for 2023-24 on the first day of the month.
In fact, some economists see the MPC even cutting interest rates in the second half of 2023, as the economy slows down markedly, with a global slowdown dragging down domestic growth too.
The weakeness in global demand is already showing signs of hurting the economy, with India's merchandise exports contracting by 17 percent to $29.78 billion in October. This was the first time since February 2021 that monthly exports had fallen on a year-on-year basis and come in below $30 billion.
The poor performance of exports in October has seemingly been reflected in the latest industrial growth data, also released today.
As per the data, India's industrial output contracted by 4 percent in October - the worst performance in over two years.
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