Retail inflation falls to three-month low of 9.87% in December

Led by softening of vegetable prices; many hope this may mean RBI will not raise policy rate at end-Jan review

A month after touching a record high, consumer price index-based inflation came down to a three-month low of 9.87 per cent in December, thanks to vegetable prices.

This has led quite a a few economists to expect the Reserve Bank of India (RBI) to retain, instead of raising, its policy rate at the review due later this month. CPI-based inflation had touched 11.16 per cent in November.

Official data issued on Monday showed the rate of price rise down to a single digit in December after two  months. However, in rural areas it remains in double digits, at 10.49 per cent, though down from 11.66  per cent in November. In urban areas, it fell to 9.11 per cent from the earlier 10.53 per cent.     

The rate of price rise in food items went down from 14.72 per cent in November to 12.16 per cent in December. This was a result of the cooling in vegetable price rise. Vegetable inflation fell to 38.76 per cent in December from 61.6 per cent in November.

“Retail inflation has significantly eased, more than the anticipated levels,” said Rupa Rege Nitsure, chief economist at Bank of Baroda.

Among food items, protein-rich products saw an uptick in inflation in December. Prices of non-vegetarian items rose 12.64 per cent in December compared to 11.96 per cent in November. The rate of price rise in milk products was 9.87 per cent, from 9.06 per cent in November.

Also, the price rise in clothing, bedding and footwear products went up from 8.94 per cent in November to 9.25 per cent in December.

Analysts said RBI could now maintain status quo on policy rates in its review on January 28. “RBI had stated that if it saw signs of moderation in food items, it might not go for a hike,” noted Abheek Barua, chief economist at HDFC bank.

RBI had maintained status quo on the repo rate at 7.75 per cent in its mid-quarter monetary policy review, on the back of an expected softening in vegetable prices. Nitsure said going by the sluggish industrial output numbers and core wholesale inflation going down in the past months, RBI might not opt for a rise in rates.

The Index of Industrial Production contracted 2.1 per cent in November against a decline by one per cent a year before in the same month. This had  dashed hope of economic recovery in at least the third quarter of this financial year. The economy grew only 4.6 per cent in the first half of 2013-14, against 5.3 per cent in the corresponding period  of 2012-13. In all of 2012-13, the economy expanded at a decadal low of five per cent.