Retail inflation rises to over 3-year high of 5.54%

A 10% rise in food prices pushed the retail price inflation to a 37-month high of 5.54% in November, significantly higher than the Reserve Bank of India's medium-term target of 4% while the industrial output remained in contraction, putting a spanner on any interest rate cut by the central bank in the current fiscal year ending March 31, despite an alarming slowdown in the economy.

Retail food prices, which make up nearly half of the inflation basket, increased 10.01% in November from a year earlier. Food inflation was 7.89% in October. Prices of vegetables, particularly onions, and pulses pushed the food inflation up in November.

However, the core inflation, which refers mainly to the services side, remained at 3.4% implying the demand-led inflation is still low.

Though new crops in January-February is expected to put a lid high vegetable prices in the coming months, sticky pulses and a higher telecom tariff from this month will keep the headline retail inflation on a higher side. Economists believe the CPI inflation can even go above 6% in December and January.

Since the RBI takes retail inflation into account while deciding on its monetary policy, it is expected that it may not cut the key policy repo rate anytime soon.

The industrial production too declined to 3.8% in October but bettered from 4.3% in the previous month.