Declining for the fifth consecutive month, retail inflation in November dropped to 4.38 per cent, the lowest since the new series of data was introduced in January, 2012, on the back of high-base effect of last year and softening of prices of food items.
The Consumer Price Index-based inflation or retail inflation stood at 5.52 per cent in October, while it was 11.16 per cent in November, 2013.
“The distinct moderation in CPI inflation to 4.4 per cent is admittedly a good sign for the economy; however, this has been on the back of a high base effect last year. It comes over the highest CPI inflation of 11.2 per cent last year. Hence, the signs of decline in inflation should be interpreted with caution,” credit rating agency CARE Ratings said.
The overall food inflation came down to 3.14 per cent in November from 5.59 per cent in the previous month.
Drop in vegetable prices
Retail prices of vegetables declined by 10.9 per cent against a decline of 1.45 per cent in October, according the data released by the Ministry of Statistics and Programme Implementation.
Inflation in fruits slowed to 13.74 per cent from 17.49 per cent in October.
The rate of inflation in protein-rich items such as eggs, fish and meat was at 6.48 per cent in November, slightly higher from 6.34 per cent in the previous month.
The data strengthen the case for a rate cut by the Reserve Bank of India (RBI) as the central bank has started targeting retail inflation while deciding on its bi-monthly monetary policy. The RBI has been targeting a retail inflation of 8 per cent by March, 2015, and 6 per cent by March, 2016.
CARE Ratings added, “It would be a tough call for the RBI in February — on one hand, IIP numbers have registered a negative growth while, on the other hand, inflation numbers are likely to increase in the coming months.
“While there could be a strong case for rate cut, the final inflation number will be the clinching factor.”
“Inflation has come down because of the seasonal fall in vegetable and fruit prices. And it has also been helped by fall in global commodity prices... However, the RBI will not cut the policy rates before the Union Budget (2015-16),” said Rupa Rege Nitsure, Chief Economist, Bank of Baroda.