Cooling vegetable and edible oil prices drove India’s retail inflation down to 5.88% in November from 6.77% in October, the first time since January this year that consumer prices have risen slower than the 6% tolerance threshold set for the central bank.
Food price inflation faced by consumers eased to an 11-month low of 4.67% from over 7% in October, but rural consumers faced a greater burden with a 5.2% price rise in food items, compared to just 3.7% for their urban peers. Overall rural retail inflation also stayed high at 6.09%.
November’s retail inflation numbers corroborate Reserve Bank of India Governor Shaktikanta Das’s point that the worst of inflation may be over, but core inflation remained ‘sticky’ above 6% as he had indicated during last week’s monetary policy review, and economists expect headline inflation to resurge beyond the 6% tolerance threshold in December.
Vegetables and edible oils recorded 8.1% and 0.6% deflation, respectively, from November 2021 levels, but inflation in cereals continued to accelerate, rising from 12.1% in October to nearly 13%. Price rise in Milk and Spices also picked up pace to touch 8.16% and 19.5%, respectively.
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“Inflation in the major components of core inflation - transportation and communication, housing, households good and services — was up or remained stable on-year, indicating continued passthrough of input prices and recovering demand,” said Crisil chief economist Dharmakirti Joshi.
“In case of fuel and lighting as the government has not altered the taxes, we have not been able to derive any benefit from lower global crude prices,” pointed out Bank of Baroda chief economist Madan Sabnavis, who reckoned that inflation may cross 6.5% in December.
Last week, while raising the policy rate by 35 basis points to 6.25%, the central bank had projected inflation to average 6.6% in the current quarter and 5.9% between January and March 2023.
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“Cereals and milk inflation, the top two contributors to food inflation, are still elevated and on an upward trend, while the upward pressure on services inflation has strengthened core inflation,” said CARE Ratings chief economist Rajani Sinha.
While RBI will remain cautious to prevent inflationary expectations from spiralling, disappointing data from the manufacturing sector, with industrial output shrinking 4% in October, may make another rate hike at the central bank’s February 2023 monetary policy review ‘a close call’, she underlined.
