Retail inflation in India rises to 5.69% in December 2023
India experienced a surge in retail inflation, reaching a four-month high of 5.69% in December 2023, as reported by the Union Ministry of Statistics and Programme Implementation. This increase comes after November's Consumer Price Index (CPI) inflation rate of 5.55%. Despite the economists' predictions of a 5.9% year-on-year rise in December, the actual figure fell short of expectations.
Key drivers and price momentum
The primary cause of December's inflation acceleration was an unfavorable base effect, although price momentum did slow down. For example, the Consumer Food Price Index dropped by 0.9% month-on-month (MoM), thanks to a 5.3% decrease in the price index for vegetables. This deceleration in price momentum was also evident in non-food categories, with the housing price index shrinking by 0.6% MoM last month.
What about headline retail inflation?
The headline retail inflation rose in December 2023. However, it has spent 51 consecutive months above the 4% medium-term target of the Reserve Bank of India (RBI). To note, core inflation ie. inflation barring food and fuel, tumbled to 3.9% last month from 4.1% in November.
CPI inflation forecast and impact on policymakers
Aditi Nayar, Chief Economist at ICRA, anticipates that CPI inflation will significantly decrease to around 5.2% in January, due to a decline in food inflation resulting from an adverse base. The lower-than-expected retail price increase in December is good news for policymakers. This is because this latest inflation data will be the final one before Finance Minister Nirmala Sitharaman presents the interim budget for 2024-25 on February 1. The Monetary Policy Committee's interest rate announcement will follow on February 8.
