Nov retail inflation hits 14-month high at 5.41%

Nov retail inflation hits 14-month high at 5.41%

Pay hike, irregular rainfall may further spike inflation

Nov retail inflation hits 14-month high at 5.41%
India’s retail inflation accelerated to a 14-month high in November, driven up by higher food prices, underscoring the challenge that the Reserve Bank of India (RBI) faces in meeting its medium-term inflation target.

The consumer price index (CPI), which the central bank closely tracks for setting lending rates, rose an annual 5.41 per cent last month, in line with a Reuters poll estimate. Retail prices were up 5.0 per cent on-year in October.

The RBI aims to keep retail inflation to around five per cent by March 2017. But steep government pay hikes and irregular rainfall pose risks to that target.

“The broader theme really has been a considerable pick-up in food inflation and unwinding of the favourable base of last year, as well as stickiness in services inflation,” said Kotak Mahindra Bank economist Madhavi Arora.

In her view, the RBI will hold rates at least until March. After easing monetary policy aggressively this year, the RBI earlier this month held the key repo rate at 6.75 per cent. While a crash in global commodity prices has tamped down prices in India, the central bank remains worried about elevated household inflationary expectations. Retail food price jumped an annual 6.07 per cent last month, faster than October's 5.25 per cent rise.

Inflation outlook clouded
Monday’s data came hours after the government reported a pickup in wholesale food prices.

While overall wholesale prices declined an annual 1.99 per cent in November, their 13th straight fall, wholesale food prices gained 5.20 per cent on year compared with October’s provisional 2.44 per cent rise.

Clouding the inflation outlook is the recommendation of a government panel for an average 24 per cent pay hike for millions of its employees, which would lift demand-driven price pressures.

The RBI is also expected to contend with a potentially weakening rupee should outflows from emerging markets gather pace if, as widely anticipated, the Federal Reserve hikes US interest rates this week.

The RBI “faces a tough challenge in meeting its medium-term CPI inflation target, suggesting that the rate-cutting cycle has now come to an end,” said Shilan Shah, an economist with Capital Economics.

Inflated situation

CPI inflation up 5.41% in NovemberRetail prices up 5.0% on-year in October Wholesale prices decline an annual 1.99% in November RBI cautiously watching inflationary trends

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