Retail inflation at 14-mth high of 5.41%; food prices spike

Retail inflation rose for the 4th-month in a row in November, accelerating to 14-month high of 5.41 per cent on sharp pickup in food prices, posing a challenge to further easing of monetary policy by the Reserve Bank.
The wholesale price inflation, although in negative zone for the 13th consecutive month, also moved up to (-)1.99 per cent in November as food articles including pulses and onion turned costlier. It stood at (-)3.81 per cent in October.
The consumer price-based retail inflation rose to 5.41 per cent in November, from 5 per cent in October.
The rising retail inflation will add to worries of RBI Governor Raghuram Rajan who had left interest rate unchanged earlier this month, targeting to contain retail inflation at 5 per cent in the medium term. The borrowing costs in India are among the highest across major Asian economies.

RBI is bracing itself for an expected increase in interest rate by the US Federal Reserves this week and a higher retail inflation will only add to his worries.
Besides, implementation of the 7th Pay Commission recommendations on pay hike for central government employees may further stoke price pressures. The recommendations are to take effect from January.

India Ratings & Research Chief Economist Devendra Kumar Pant said: "Both Wholesale Price Index and Consumer Price Index inflation rates, although marginally higher than our expectations, are according to trend. Favourable base effect is waning out and this will push both wholesale and retail inflation in coming months."

Retail food inflation shot up in November at 6.07 per cent, up from 5.25 per cent recorded a month ago.
Industry chamber Assocham said since the WPI and CPI numbers are broadly in line with expectations it gives room to RBI for further rate cut to ensure pick up in domestic investment cycle.
RBI mainly looks at retail inflation, data for which is
expected later in the day, while firming up monetary policy stance.
It also takes into account industrial production numbers, which as per the latest reading fell for a third straight month, contracting 1.5 per cent in January due to poor showing of manufacturing.

ICRA Senior Economist Aditi Nayar said: "Assuming an average crude oil price of USD 40 per barrel in 2016-17 and modest depreciation in the INR-USD, WPI inflation is expected to average +3 per cent in the coming fiscal, as compared to a 2.5 per cent Y-o-Y decline in 2015-16."
As per the data released today, inflation in pulses and onion eased to 38.84 per cent and (-)13.22 per cent, respectively. The rate of price rise in the case of vegetables was (-)3.34 per cent, and for fruits, it stood at (-)1.95 per cent.
Price rise in potato was (-)6.28 per cent while that of egg, meat and fish came in at 3.47 per cent.

The December WPI inflation has been revised to (-)1.06 per cent from the provisional estimate of (-)0.73 per cent.
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Industry body Ficci said that with the demonetisation move, the liquidity has been squeezed and the demand has taken a hit and a 50 basis point cut in RBI lending rate would spur economic activity.
"At this juncture, an accommodative stance by the Reserve Bank would have given a positive signal both to the industry and the consumers.
"Both investment and consumption activity needs to be pushed at this juncture. Ficci looks forward to a 50 bps cut in the repo rate in the near future," Ficci President Harshvardhan Neotia said.