Poll | December CPI inflation seen little changed at 5.9%, November IIP growth may rebound to 3.2%

India's headline retail inflation is unlikely to have changed much in December 2022 from November's 11-month low of 5.88 percent. According to a Moneycontrol poll of 15 economists, Consumer Price Index (CPI) inflation is expected to have been little changed at 5.9 percent last month.

CPI inflation dropped sharply in November to below the Reserve Bank of India's (RBI) 6 percent upper bound for the first time in 2022.

However, December is unlikely to see a repeat, with an unfavourable base effect cancelling out continued weakening of price momentum of largely food items.

The Ministry of Statistics and Programme Implementation will release retail inflation data for December at 5.30 pm on January 12.

At 5.9 percent, the economists' prediction for last month's inflation print would be the 39th month in a row it would be higher than the central bank's medium-term target of 4 percent.

"Sequentially, headline inflation is slowing," noted Rahul Bajoria, chief India economist at Barclays.

"There are two distinct movements visible in CPI inflation, with food prices across several product groups declining but non-food inflation remaining sticky and showing signs of demand-side pressures," Bajoria added.

According to data from the Department of Consumer Affairs, prices of 17 of the 22 items the department collates data on declined in December from November. This is a huge turnaround from November, when 17 items had seen a month-on-month increase in prices from October.

The items which saw their prices rise sequentially in December includes cereals and milk.

Despite a fall in prices, food inflation may have risen last month from 4.67 percent in November thanks to an unfavourable base effect – something which may, more broadly, nullify the impact of lower food prices and cause the headline inflation rate to be little changed.

In December 2021, the general index of CPI had decreased by 0.3 percent month-on-month, creating a low base for the December 2022 inflation print. As such, even if the index declines month-on-month in December 2022 by the 0.1 percent it did in November 2022, CPI inflation will rise to 6.1 percent.

Policy impact

The inflation data for December will be the last one before the RBI's Monetary Policy Committee (MPC) meets next month.

In its meeting in December, the committee had increased the repo rate by 35 basis points to 6.25 percent – the fifth time it raised the policy rate in eight months.

One basis point is a hundredth of a percentage point.

However, the November inflation data, released less than a week after that rate hike, has made a rate hike at the February meeting a close call.

The MPC's next meeting is scheduled to begin on February 6, with the decision to be announced on February 8 – a week after the budget for 2023-24 is presented in Parliament.

Industrial rebound

The statistics ministry will also release the Index of Industrial Production (IIP) data for November on January 12, which is expected to show that industrial output grew by 3.2 percent, according to the median of estimates of 11 economists polled by Moneycontrol.

However, IIP growth is expected to return to positive territory in November after data released on December 30 showed output of India's eight core sectors increased by 5.4 percent in the penultimate month of 2022.

Core industries account for around 40 percent of the IIP. As such, the former's performance is seen as a lead indicator of the latter.

"The lead indicators – core sector output, exports and auto production – saw a strong performance in November, after the Diwali holiday-led effect weighed sharply on output in October," said Kanika Pasricha, an economist at Standard Chartered Bank.

"We continue to believe that services, rather than manufacturing, will be a key growth driver in 2022-23 as pent-up demand is yet to be fully released," she added.