Retail inflation rises to 5.59% in December due to an uptick in food prices, shows government data

According to the RBI, it is expected that headline inflation will peak in the fourth quarter of the current fiscal and soften thereafter

Press Trust of India January 12, 2022 23:37:52 IST
Retail inflation rises to 5.59% in December due to an uptick in food prices, shows government data

New Delhi: Rising prices of essential kitchen items pushed the retail inflation to a six-month high of 5.59 percent in December, close to the Reserve Bank's upper tolerance limit of 6 percent.

The Consumer Price Index (CPI) based retail inflation was 4.91 percent in November 2021 and 4.59 percent in December 2020.

The RBI, which mainly factors in the CPI-based retail inflation while arriving at its bi-monthly monetary policy, has been tasked by the government to keep the inflation at 4 percent with a margin of 2 percent on either side (that is, in the range of 2-6 percent).

Retail inflation has been rising since October 2021. In July too the rate of price rise was 5.59 percent but it slowed in the subsequent two months, before starting to move up from October.

As per the data released by the National Statistical Office (NSO) on Wednesday, food inflation was at 4.05 percent in December this fiscal compared to 1.87 percent in the preceding month.

In the food basket, inflation was on the higher side in 'cereals and products', eggs, 'milk and products', spices, and 'prepared meals, snacks and sweets' segments in December over the preceding month.
However, the rate of price rise was slower in case of vegetables, fruits, and 'oil and fats'.

In the 'fuel and light' category, though the inflation softened from a month ago, it remained elevated at 10.95 percent during the month. It was 13.35 percent in November 2021.

The Reserve Bank expects the inflation print to be somewhat higher over the rest of the year as base effects turn adverse. According to the RBI, it is expected that headline inflation will peak in the fourth quarter of the current fiscal and soften thereafter.

Aditi Nayar, chief economist at Icra, said the increase in CPI inflation in December 2021 relative to the previous month was primarily led by food and beverages, and clothing and footwear.
There was a welcome moderation in the prints for fuel and light, and pan, tobacco etc amidst a mild dip in miscellaneous items and housing, she added.

"Overall, we expect the headline CPI inflation to range between 5.7 - 6 percent in Q4 FY2022, as compared to the MPC's (Monetary Policy Committee) forecast of 5.7 percent.

"While the CPI inflation has hardened sharply between November and December 2021, the uncertainty triggered by the third wave is sure to take precedence when the MPC meets next month. We now see a negligible likelihood of a change in stance or reverse repo hike in the February 2022 policy review," Nayar said.

With a higher inflation target, the MPC can choose to prioritise growth revival for much longer than other major central banks, for many of whom inflation control has become a pressing policy focus, she noted. The RBI's next monetary policy meeting will be held in February.

"Food inflation is expected to increase further due to supply bottlenecks and adverse weather conditions. "Although there has been a 68 basis points increase in the inflation rate in December over the previous month, the average inflation for Q3 remained below the RBI's estimates of 5.3 percent," said M Govinda Rao, Chief Economic Adviser at Brickwork Ratings.

The CPI has now remained within the tolerance level for the sixth month in a row with 5.59 percent this December, D R E Reddy, CEO and Managing Partner at CRCL LLP said.

"Inflationary pressures on food are projected to remain low for the foreseeable future. Household income has also increased, indicating a boost in discretionary income in the hands of the average person. Overall, these figures show that the economy is rapidly rebounding from the pandemic's devastation," Reddy said.

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