India’s headline retail inflation rate jumped to 5.55 per cent in November, owing to a combination of an unfavourable base impact and price increases for major food products, according to data provided by the Ministry of Statistics and Programme Implementation on Tuesday.
The Consumer Price Index (CPI) inflation rate in October was 4.87 per cent.
The latest CPI inflation rate of 5.55 per cent is lower than expected, with economists expecting prices to rise 5.8 per cent year on year in November.
Although headline inflation remained within the RBI’s tolerance range of 2-6 per cent for the third month in a row, it has now been above the medium-term target of 4 per cent for 50 consecutive months.
The surge in food and beverage inflation to 8 per cent in November was largely led by a sharp increase in vegetable inflation, even as seven of the 12 food sub-groups reported a moderation in their YoY inflation print. However, readings for cereals and spices persisted in double-digits for the 15th and 18th consecutive months, respectively, while that for pulses did so for the sixth straight month in November.
The lag in cumulative rabi sowing vis-à-vis year-ago levels as well as in reservoir storage does not augur well for food prices, although the pace of the YoY inflation could moderate somewhat on the back of upcoming favourable base effects in Jan-Feb 2024. Besides, the impact of El Nino on moisture levels poses a concern, as it may prove to be unfavourable for the yields of rabi crops like wheat.
The core CPI inflation eased to 4.2 per cent in November 2023 from 4.4 per cent in October 2023; this was the lowest point in the post-pandemic period. The sustained easing in the core CPI inflation is positive and has counterbalanced the menacing food inflation prints over the last few months.
Chief Economist, Head Research and Outreach at Icra, Aditi Nayar believes that with lingering concerns related to prices of some food items, December 2023 CPI inflation is in a range of 5.6-5.8 per cent and the policy rates are appropriate at the current juncture and no further tightening is warranted in the near term unless there is a durable shock to the CPI inflation trajectory.
“We expect the MPC to maintain the status quo for the next couple of policy meetings, and foresee a shallow rate cut cycle of around 50-75 bps, commencing in the August 2024 meeting,” Nayar added.
CEO of TIW Capital, Mohit Ralhan said that the manufacturing growth has become broad-based and the majority of industries witnessed positive growth. “On use-based classification, capital goods growth came in at 22.6 per cent YoY indicating the gathering momentum in investment activity. Construction growth came in at 11.8 per cent YoY. Construction is a labour-intensive sector, and continued momentum will augur for rural consumption,” Ralhan said.
