At 7.35% In December, Consumer Inflation Worst Since July 2014

Inflation remained above RBI's goal of 4% for third month in a row.
Inflation remained above RBI's goal of 4% for third month in a row.

Consumer inflation worsened to 7.35 per cent in December, highest since July 2014, government data showed on Monday. That marked the third month a row in which consumer inflation - or the rate of increase in consumer prices - remained above the Reserve Bank of India's medium-term target of 4 per cent, dashing hopes of further monetary easing at a time when economic growth has fallen to lowest in more than six years.

Annual retail inflation in December remained was above 5.54 per cent posted in November and higher than the 6.20 per cent forecast in a Reuters poll of economists.

Inflation rose swiftly in December primarily on account of higher food prices. Food inflation in December came in at 14.12 per cent as against 10.01 per cent in the previous month and deflation of 2.65 per cent in December 2018.

“CPI at 7.5 per cent, broke the ceiling, going beyond the RBI tolerance limit of 6 per cent, fully reflecting the recent uptrend in food prices. While fruit and vegetable prices may come down as these crops have short cultivation cycles, the rise in prices of pulses may stay on for more time," said Joseph Thomas, head of research, Emkay Wealth Management.

"The RBI may not hike the policy rates in the immediate future, it may not be able to cut the rates either. While the circumstances around likely fiscal slippages may have an adverse impact on interest rates, the inflation level would add to these worries in the immediate term,” he added.

The central bank, which tracks consumer inflation data primarily while formulating its monetary policy, reduced the repo rate by a total 135 basis points to 5.15 per cent in 2019. In its last bi-monthly policy review in December, the RBI kept the key interest rates on hold in a surprise move citing concerns about inflation in the near term.

India's GDP or gross domestic product expanded at more than six-year low rate of 4.5 per cent in the quarter ended September. The economy is struggling against low demand and thousands of job losses amid weakness across sectors.

Meanwhile, the government has projected that economy will grow at 5 per cent in the current financial year, the slowest pace of expansion in 11 years.