Inflation accelerated for the first time in five months in December to 5.0 percent, driven by higher food costs: Govt
Retail inflation moved up marginally to 5 per cent in December as prices of some food items, including fruits and vegetables, increased.
In November, retail inflation based on the Consumer Price Index (CPI) was at 4.38 per cent — the lowest level since government started computing the new series of data in January 2012.
In December 2013, retail inflation was at 9.87 per cent.
Despite surge in retail inflation, analysts expect that RBI may ease interest rate in its February monetary policy review. RBI is scheduled to announce its sixth bi-monthly monetary policy on February 3.
Food inflation rose to 4.78 per cent in December 2014, from 3.14 per cent in previous month, showed the official data which was released today.
Retail prices of vegetables increased by 0.58 per cent as against a decline of 10.9 per cent in November. Fruits were costlier by 14.84 per cent, while the rate of price rise for the same was at 13.74 per cent in previous month.
Category under food and beverages witnessed a rise of 5 per cent in December, over 3.5 per cent in previous month.
Inflation in protein-rich items like eggs, fish and meat was down at 5.24 per cent in December, from 6.48 per cent in the previous month.
Also, prices of oil and fats declined by 1.24 per cent in December over a decline of 0.83 per cent in November.
“We also have a view that the February policy (of RBI) could see a rate cut. But, I would put a caveat that out of all the pre-conditions that the RBI governor laid down in the last policy … but I am more concerned about how the budget 2015-16 is going to look like.
“But purely on inflation argument, I would say that the time has come for a rate cut,” said Samiran Chakraborty, Head of Research, StanChart Bank.
Among other items, prices of cereals and their products came down further to 3.98 per cent in December from 5.2 per cent in previous month.
In the pulses and products category, retail inflation in December stood at 7.24 per cent, marginally down from 7.54 per cent in November.
For items in fuel and lights, inflation softened to 3.41 per cent during the month. For milk and its products, the rate of price rise stood at 9.62 per cent in December against 10.24 per cent a month ago.
The rate of price rise in non-alcoholic beverages was 5.95 per cent in December from 5.75 per cent in previous month.
Sugar prices fell further by 0.84 per cent during the month compared to a decline of 0.28 per cent rise in November.
The consumer inflation rose to 5.32 per cent in urban India and 4.71 per cent in rural area during December. In the previous month of November, the respective figures stood at 4.69 per cent and 4.09 per cent.
DEBOPAM CHAUDHURI, CHIEF ECONOMIST, ZYFIN RESEARCH
The growth in industrial production in November 2014 is encouraging and signals the onset of a recovery phase within the Indian Business Cycle. More than 70% of the industry groups surveyed posted a growth in November. Positive economic outlook would ensure an uptrend in IIP in the following months coupled with rising exports as US recovers. On the retail inflation front, the marginal uptick observed in December was expected. I don’t see any immediate softening in the repo rate and the RBI would wait till the end of this fiscal before taking a call on easing liquidity.
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI
“The larger focus this time would be on the inflation print because this is the first print devoid of any base effect spill-overs.
“Keeping aside the base effect impact, this inflation data has been positive. All non-food items have behaved broadly in line, with expectations keeping core in line with what our anticipation was.
“Food inflation has corrected more sharply than our anticipation.
“I would think that the stage is quite set for a Feb. 3 25 basis points rate cut.”
DEVENDRA KUMAR PANT, CHIEF ECONOMIST & SENIOR DIRECTOR, INDIA RATINGS & RESEARCH
“The CPI numbers are on expected lines. Now that the favourable base effect is going away, we might see some uptick in the inflation numbers, and rising food prices could add more pressure. However, lower oil prices will give comfort.
“We still expect there is a possibility of some monetary easing. The real action could be seen only after the budget.”
SHIVOM CHAKRABARTI, SENIOR ECONOMIST, HDFC BANK, NEW DELHI
“The CPI number could be lower than RBI’s forecast of 6 percent at March-end. The prospect of rate cut is certainly on.
“Going by what RBI has said earlier, there is a possibility of a rate cut post-budget around the first week of March, once the RBI has more clarity on fiscal consolidation.
“IIP (industrial output) was a surprise. While it does show that at the margin growth is bottoming out, it’s too early to call for this a substantial recovery.”
A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI
“The headline inflation is below our expectation with most of the downside surprise coming from the food sub-group.
“Based on the emerging CPI profile and the further fall in oil prices since the December policy, we expect RBI to cut the repo rate by 25 bps in the February policy. While a 50 bps cut cannot be ruled out, we think RBI would prefer to be cautious in light of doubts about fiscal consolidation.”
RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI
“Both the data points are very encouraging, and at this point I do feel that these trends are likely to sustain in the (fiscal) fourth quarter, given that it is the busiest quarter of the year.
“As far as the RBI is concerned, they will surely wait for the budget to ascertain the future trajectory of the government finances and its implications for inflation and macro stability.”
‘IIP growth incipient sign of revival, hope for firm recovery’
With factory output in November 2014 growing at the fastest pace in 5 months, India Inc today said the turnaround needs to be made consistent for a longer period and reiterated its call for a rate cut even as December retail inflation was below the RBI’s 6 per cent target.
“We hope that going forward, the incipient signs of revival would transform into a firm recovery especially as there is some progress in investment intentions and business confidence is on the ascendant,” CII Secretary General Chandrajit Banerjee said.
Reviving hopes of economic recovery, industrial production grew at a 5-month high of 3.8 per cent in November. At the same time, retail inflation moved up marginally to 5 per cent in December. The RBI has targeted 6 per cent inflation by January 2016.
“The turnaround in industrial production in November needs to be made consistent for a longer period before we can see a secular growth in manufacturing. Efforts from the government and the RBI have to continue to unclog several sectors from environmental and other regulatory issues. Reduction in interest rates will be a major trigger,” Assocham President Rana Kapoor said.
FICCI President Jyotsna Suri said: “While it is heartening to see the growth in manufacturing in November, however it does come over the negative base. There is a sense of optimism in the industry with the steps taken by the Government in the last few months….”
According to CII’s Banerjee, demand creation has to be the priority along with a “major impetus” to manufacturing sector to steer the economy towards an accelerated growth path.
“For this, the government should put in place critical entrepreneur friendly reforms which would provide an investment push to the economy. Tax regime should be transparent, predictable and meet global standards,” he added.
“Besides, the pace of reviving stalled projects should be stepped up, possibly with the support of states. The disinvestment process should be hastened and the proceeds be invested in infrastructure,” Banerjee said.
CII said the marginal rise in retail inflation “should not prevent the RBI from cutting benchmark interest rates in its forthcoming monetary policy announcement and moving lockstep with the government to put the focus back on growth.
“This assumes importance as investments have not shown a significant pick up and consumer durables continue to show a muted performance,” the industry body said.