Retail inflation probably breached RBI target in December; rising onion prices contributed to surge: Report

Bengaluru: Rising vegetable prices probably pushed retail inflation to its highest in more than five years in December, exceeding the Reserve Bank of India’s (RBI) medium-term target of 4 percent for a third straight month, a Reuters poll of economists predicted. The median forecast in the 3-8 January Reuters poll of nearly 50 economists predicted India’s annual consumer inflation rose to 6.20 percent in December from November’s 5.54 percent. Over 60 percent of respondents expected retail inflation, due for release on 13 January, to breach the upper band of the RBI’s buffer range of 2 percent to 6 percent, with the highest forecast for 7.01 percent. [caption id=“attachment_3201802” align=“alignleft” width=“380”]  Representational image. Reuters[/caption] Last month, onion prices—an important food in Indian households—soared tenfold, contributing to a surge in food inflation that has picked up steadily since March. “The single biggest factor for this increase in headline inflation is onions. While there is some sort of increase in other food prices as well, we don’t see that to be extremely alarming,” said Aastha Gudwani, India economist at BofA Global Research. But core inflation, which excludes volatile components like food and energy, has declined, highlighting weak underlying demand. Therefore, many economists do not expect the rise in consumer price inflation to prompt any policy move by the central bank at its next meeting, in February. “I don’t think a hike is something the RBI would be looking at right now because they also need to see what is happening to growth—that is a big concern right now,” said Sakshi Gupta, senior India economist at HDFC Bank.