Published: Tue, January 14, 2020
Markets | By Otis Pena

Retail inflation rose to 7.35% in December - the highest since July 2014

Retail inflation rose to 7.35% in December - the highest since July 2014

Retail inflation has sharply risen to over five-and-half-year high of 7.35 per cent in December from 5.54 per cent in November, following a significant surge in food prices and hike in telecom tariffs.

The unexpected jump in inflation diminished the chances of the RBI cutting interest rate at its next monetary policy review due in early February.

Retail inflation had spiked in December because of higher food inflation, which was at 14.22 per cent. Food inflation shot up because of costly vegetables, whose prices rose by 60 per cent and pulses, which became 15 per cent costlier. That marked the third month a row in which consumer inflation - or the rate of increase in consumer prices - remained above the Reserve Bank of India's medium-term target of 4 per cent, dashing hopes of further monetary easing at a time when economic growth has fallen to lowest in more than six years. The central bank targets a consumer price index-based inflation of 4%, with a tolerance limit of 2% on either side. This also marks a spike in inflation from November when the retail inflation was 5.54 per cent. The spike in retail inflation is attributed to high food prices.

The inflation in "pulses and products" was recorded at 15.44 per cent, while in case of "meat and fish" it was almost 10 per cent.

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"The headline CPI number of 7.35% y/y in December 19 was slightly above our expectation in the vicinity of 7%, owing to higher inflation in food and transport & communication".

Government data however shows that "core inflation" - a metric that excludes generally volatile components like food and energy - came in only at 3.7%, a slight increase from past year.

According to FAO, the 12.5 per cent annual increase in its Food Price Index in December has been led mainly by edible oils (30.9 per cent), meat (18 per cent) and dairy (17 per cent). Vegetables inflation rose to 60.5 per cent in December from 36 per cent in November. "However, weak demand conditions have kept core-CPI and rural wages soft, second round effect of the food-supply shock on wages is unlikely and the RBI has rightly reiterated space for future monetary policy action", Balasubramanian added.

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