Retail inflation jumps to 7.35% in December, crosses RBI’s comfort level

Darnell Taylor
January 14, 2020

India's retail inflation in December stood at 7.35%, again led by rising food prices.

The retail inflation based on Consumer Price Index (CPI) was 2.11% in December 2018 and 5.54% in November 2019.

It can be noted that under the medium-term target it signed with the government, the RBI is mandated to keep the inflation at 4 per cent with a flexibility to have a 2 percentage point relaxation on either side. It was 10.01% in November 2019.

The simultaneous hardening of worldwide prices poses a challenge to the government and the Reserve Bank of India in containing domestic food inflation at a time when the economy is already going through a deep slowdown.

Government data however shows that "core inflation" - a metric that excludes generally volatile components like food and energy - came in only at 3.7%, a slight increase from a year ago.

This is the highest retail inflation recorded in India after five years. Unseasonal weather, which experts say may have been brought on by climate change, have fuelled the price of onions from March 2019.

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Economists, however, opine that food inflation would continue to be elevated in the next few months because of shortage in pulses even when vegetable prices head south. "Consumer Price Index (CPI) at 7.5% broke the ceiling going beyond the RBI tolerance limit of six per cent, fully reflecting the recent uptrend in food prices".

The data assumes significance as the Reserve Bank, in its latest monetary policy review, maintained key lending rates on account of rising retail inflation.

Although nowhere close to the all-time high of 240.1 touched in February 2011 - that was at the height of the global commodity boom - it is still a 21.7 per cent jump over the low of 149.3 in January 2016.

This also comes at a time when India's GDP growth has been forecasted to dip to an 11-year low of 5% in the current fiscal, primarily due to poor showing by the manufacturing and construction sectors.

All eyes will now be on the upcoming union budget, where the government may address growth concerns and announce measures to improve the sentiments and boost growth.

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