Retail inflation rose to 7.35% in December - the highest since July 2014

Retail inflation rose to 7.35% in December - the highest since July 2014

Retail inflation rose to 7.35% in December - the highest since July 2014

India's retail inflation accelerated to 7.35% in December on the back of rising food prices.

The Central government has mandated the Reserve Bank of India to keep inflation in the range of 4% with a margin of 2% on either side. Prices of eggs increased by 8.7%, and prices of food and beverages overall increased by 12.16%.

Retail inflation had spiked in December because of higher food inflation, which was at 14.22 per cent. Food inflation shot up because of costly vegetables, whose prices rose by 60 per cent and pulses, which became 15 per cent costlier. A poll of 37 economists had estimated consumer price inflation to be at 6.7% in December 2019, Bloomberg reported. The UN Food and Agricultural Organisation's Food Price Index (base year: 2002-04 = 100) averaged 181.7 points in December 2019, the highest since the 185.8 level of December 2014.

The CPI inflation, also known as retail inflation, hit a 40-month high of 5.54 per cent in November, from 4.62 per cent in October.

Moreover, the concerns surrounding a higher core inflation trajectory are likely to be adequate for the Monetary Policy Committee (MPC) to remain on hold in its February 2020 policy review, along with a possible change in stance from accommodative to neutral, she added. The rising vegetable prices can also be seen as a key reason behind the jump in the retail inflation.

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Inflation was pushed up by a rise in food prices and telecom tariffs. Prices of fuel and light increased the least, by just 0.7%. "No", analysts at rating agency Crisil said.

Nirmala Sitharaman is set to present the budget on February 1, and the RBI's next monetary policy meet is on February 6, where it will take a decision on an interest rate cut.

"The headline CPI number of 7.35% y/y in December 19 was slightly above our expectation in the vicinity of 7%, owing to higher inflation in food and transport & communication".

CPI was 2.11 per cent in December 2018. Notwithstanding the marginal rise in Core CPI in Dec19, we expect it to continue to stay soft (3.7% y/y in Dec19 vs. 5.7% in Dec18) given benign demand conditions.

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