Retail inflation picked up in December, led by a continued rise in vegetable prices.
Consumer Price Index inflation stood at 5.59% in December, compared with 4.91% in November, according to data released by the Ministry of Statistics and Program Implementation on Wednesday. It remained within the Monetary Policy Committee's target range of 4(+/-2)%.
A Bloomberg poll of 35 economists had estimated inflation at 5.8% for December.
Food and beverage inflation rose to 4.47% in December compared to 2.6% in November.
Core inflation, excluding food and fuel, eased to 6.19% from a five-month high of 6.21% in November, according to data from Bloomberg.
The uphill climb is despite a sequential contraction of 0.4% and is primarily reflective of a lower base factor, Suman Chowdhury, chief analytical officer at Acuité Ratings said. Sequential food inflation has been at -0.9% after rising persistently for 3 months. This is mainly due to seasonal factors characterised by better availability of vegetables and fruits, he added.
Chowdhury estimates CPI inflation to average 5.5% for FY22. Upside risks to this forecast, however, may emerge if there are supply chain challenges due to the emergence of the third pandemic wave, he added.
Inflation Internals (Year-On-Year)
Inflation in oils and fats was at 24.3% in December compared with 29.7% in November.
Vegetable prices were 3% below a year ago. In November prices were 13.6% lower than last year.
Clothing and footwear inflation was at 8.3% compared with 7.9% in the previous month.
Housing inflation stood at 3.6%, compared with 3.7% in November.
Fuel and light inflation stood at 10.6%, compared with 13.4% last month.
Inflation in transport and communication was at 9.7%, compared with 10% in November.
Key Vegetables: Signs Of Easing
Prices of all three key vegetables — potatoes, onions and tomatoes, eased on a sequential basis.
Potato prices eased by 11.5% in December over a month ago, after a rise of 16.1% in the previous month. Prices were 11.5% lower compared to a year ago.
Onion prices eased by 9.5% in December after rising 4.2% November. Compared to a year ago, prices are down by 23%.
Tomato prices eased by 6.3% in December after a rise of 29.7% in November. Year-on-year inflation in tomatoes is still high at 47%.
MPC: All Bets Off
This is the last inflation print before the next meeting of the Monetary Policy Committee scheduled in early February.
While the CPI inflation has risen between November and December 2021, the uncertainty triggered by the third wave is sure to take precedence, Aditi Nayar, chief economist at ICRA said. "We now see a negligible likelihood of a change in stance or reverse repo hike in the February 2022 policy review."
The duration of the current wave and the severity of restrictions will determine whether policy normalisation can commence in April 2022, or be delayed further to June 2022, she added.
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