Fall in food prices helps retail inflation ease to 4.6% in December

Retail inflation was the lowest since September 2019 data released by the ministry of statistics on Tuesday showed. It stood at 6.93 per cent in November

Retail inflation was the lowest since September 2019 data released by the ministry of statistics on Tuesday showed. It stood at 6.93 per cent in November

Food prices, which make up almost half of the inflation basket, increased 3.41 per cent in December from a year earlier, against 9.43 per cent in November.

"CPI inflation has been above RBI's upper bound inflation target of 4 +/-2 per cent for more than 11 months". Other data released by the National Statistical Office (NSO) on Tuesday, however, showed that a nascent industrial recovery, which had begun in September, retreated in November as industrial output shrank 1.9%.

The inflation, based on Consumer Price Index and closely monitored by the RBI for its monetary policy action, has come within the central bank's tolerance limit of 2-6 per cent for the first time since the outbreak of the Covid-19 pandemic.

Sugar and confectionary prices increased only 0,53 per cent in December, whereas spices got costlier by 10.29 per cent. Inflation in non-alcoholic beverages was recorded at 11.86 per cent and that in prepared meals, snacks, sweets, etc. touched 4.81 per cent.

Vegetable prices witnessed a 10.4% deflation in December, compared with inflation of 15.5% inflation in November.

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"While the considerable softening in the CPI in December 2020 offers welcome relief, it is unlikely to prove adequate to allow for rates to be eased in the upcoming policy review, as the headline inflation may only record a limited further decline before resuming an uptrend", said Aditi Nayar, principal economist at ICRA. Oils and fats have rarely displayed such a high inflation.

"We continue to expect the stance of the RBI Monetary Policy Committee to be changed to neutral from accommodative only after there is greater certainty on the durability of the awaited economic revival". Mining output contracted 7.3% in the month, while manufacturing declined 1.7%, indicating an unwinding of inventory build-ups with the quenching of pent-up and festive demand. This is the lowest point in retail inflation since March a year ago, when it was pegged at 5.84 per cent, marking a return to the comfort range of 2-6 per cent prescribed by the Reserve Bank of India for the first time in nine months. The figures for December also mean that retail inflation is now within the Reserve Bank of India's mandated range of 4% to 6%. Major contributors to higher core inflation are health and recreation and amusement, he said.

Major contributors to higher core inflation are health, and recreation and amusement.

Anagha Deodhar, chief economics, ICICI Securities, said, "This inflation print is sharply lower than our expectation".

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