Retail inflation at 5-month high

High food and fuel prices along with a low base one year ago pushed retail inflation to a five-month high of 5.6% in December bringing it closer to the RBI’s upper tolerance limit. However, uncertainty related to Omicron may prompt the central bank to give priority to economic growth over inflation.

The RBI’S upper tolerance level for retail inflation is 6%. But Governor Shaktikanta Das had raised inflation concerns weeks before the data came as cost-push pressures kept building due to renewed supply crunch amid Covid curbs.

Along with food and beverages, clothing and footwear too became costlier in December relative to the preceding month when the consumer price inflation was at 4.9%.

Food prices rose over 4% in December compared to 1.9% in the previous month. The fuel and light segment rose close to 11%, clothing and footwear rose 8.3%.

“While the CPI inflation has hardened sharply between November and December 2021, the uncertainty triggered by the third wave is sure to take precedence when the Monetary Policy Committee meets next month. We now see a negligible likelihood of a change in stance or reverse repo hike in the February 2022 policy review," said Aditi Nayar, Chief Economist, ICRA.

Industrial production growth came down to a nine-month low of 1.4% in November compared to 3.2% in October due to supply-side issues. Among the sectors performing well were mining, which grew 5%, electricity 2.1% and manufacturing 0.9%.

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