NEW DELHI: India’s retail inflation rose to 5.69 per cent in December 2023 up from 5.55 per cent in November last tear with higher food prices stretching household budgets, according to official figures released on Friday.
Retail inflation inched up marginally in December, while industrial production in November plunged to an eight-month low of 2.4%, bolstering expectations that the Reserve Bank of India (RBI) will continue with its policy stance at the Monetary Policy Committee (MPC) meeting next month, said economists.
Retail inflation based on the Consumer Price Index (CPI) rose to 5.7% in December from 5.6% in the previous month, as food inflation sped to 9.5%, according to data released Friday.
Another set of data released showed the industrial output expanding at its weakest pace since March 2023. The Index of Industrial Production (IIP) rose 2.4% in November compared with 11.6% in October, pulled down by an unfavourable base and a decline in manufacturing activity during the festive month.
Experts said high inflation coupled with strong growth indicates that interest rates are likely to stay unchanged, belying hopes that stem from possible rate cuts by the Federal Reserve this year.
“Strong economic growth and inflation averaging more than 5% in FY24 suggests a long pause in policy rates,” said Ind-Ra economists Sunil Kumar Sinha and Paras Jasrai.
First official estimates of growth released last week showed that GDP is likely to surprise with a 7.3% jump in FY24, higher than previous year’s growth number of 7.2% and RBI’s forecast of 7% for FY24.
“Rate cuts appear distant, and are unlikely to emerge before August 2024, with a stance change expected in the preceding policy meeting,” said Aditi Nayar, chief economist, Icra.
The Reserve Bank of India held the policy rate at 6.5% for the fifth consecutive time at the MPC meeting in December.
The next MPC meeting is scheduled to be held on February 6-8 after the interim budget on February 1.
The increase in retail inflation was propelled by food inflation, which came in at a four-month high of 9.5% in December compared with 8.7% in the previous month. However, core inflation falling below 4% for the first time in the post-pandemic period kept a lid on the overall number.
“The upside was contained with the sustained deflation in the fuel and light category and a moderation in core inflation just below the RBI’s target of 4%,” said Rajani Sinha, chief economist of CareEdge.
Vegetable prices rose 27.6% in December owing to onion prices rising 74.2% in December, while tomato prices rose 33.5%.
Besides vegetables, fruits, pulses and spices all recorded double-digit inflation in December.
“Despite marginal sequential moderation, food prices remained largely sticky, which drove up the year-over-year growth in December,” Sinha said.
“The persistently high inflation in specific food categories, such as cereals, pulses, and spices, raises concerns about the potential broadening of price pressures.”
Cereal inflation, on the other hand, declined below 10% for the first time in 15 months, but concerns still remain.
“The outlook for the inflation for certain items like rice, wheat and pulses remains somewhat vulnerable, given the estimated fall in annual kharif production, as well as the year-on-year lag in the ongoing rabi sowing season amid El Niño conditions,” said Nayar of Icra.
Economists expect inflation pressures to ease in the coming months, given base effects and arrival of the new crop. “We expect inflation in January 2024 to decline to 5.3-5.5% range, mainly due to the base effect,” said Ind-Ra economists.
Source: The Economic Times
Kharge says faithful can visit Ayodhya any day 