India CPI Data: Retail Inflation Surges To 5.54% In November
A workers rests on sacks of onions in a truck at the Vashi Agricultural Produce Market Committee (APMC) wholesale market in Mumbai, India, on Thursday, Oct. 3 2019. Photographer: Dhiraj Singh/Bloomberg

India CPI Data: Retail Inflation Surges To 5.54% In November

India's retail inflation surged to the highest in over three years in November, led by a steep rise in prices of vegetables, such as onions, and pulses.

Consumer Price Index inflation jumped to 5.54 percent in November 2019 compared to 4.62 percent in October, according to data released by the Ministry of Statistics and Program Implementation on Thursday. The CPI food index surged to 10 percent compared to 7.89 percent, as vegetable prices increased by 36 percent over last year.

A Bloomberg poll of 36 economists had estimated India’s retail inflation at 5.3 percent for November 2019.

At current levels, inflation has stayed above the mid-point of India’s 4 (+/-2) percent inflation target for the second straight month.

Taking note of the rising inflation, the Monetary Policy Committee paused a year-long interest rate cutting cycle in December. This, despite a sharp fall in GDP growth to 4.5 percent in the second quarter of the financial year, which has widened the output gap and led to a sharp fall in demand-driven core inflation.

In November, core inflation remained modest at close to 3.5 percent.

Also Read: Monetary Policy: How “Temporary” Is The MPC’s Pause?

Inflation Internals

  • Rural inflation stood at 5.3 percent in November 2019 as against 4.3 percent in October 2019.
  • Inflation in urban areas stood at 5.8 percent, compared to 5.1 percent the previous month.
  • The consumer food price index rose by 10 percent as against 7.9 percent last month
  • Vegetable inflation surged 36 percent over last year. The increase in vegetable inflation in urban areas was steeper at 49 percent compared to a 30 percent increase in rural areas.
  • Pulses saw a 10 percent increase in prices over last year and the meats categories saw a 9.4 percent increase.
  • Clothing and footwear inflation was at 1.28 percent compared to 1.7 percent in October.
  • Housing inflation stood at 4.49 percent in November compared to 4.6 percent in October.
  • Fuel and light inflation stood at -1.9 percent compared to -2 percent last month.
  • Health inflation stood at 5.49 percent while inflation in the education category stood at 5.21 percent.

Interest Rates On Hold

Even ahead of the release of November inflation data, India’s Monetary Policy Committee had flagged the likely rise in inflation and decided keep policy rates unchanged.

The Reserve Bank of India had raised its projection for headline CPI upwards to 4.7-5.1 percent in the second half of the year compared to 3.5-3.7 percent earlier. For the first half of next financial year, the committee pegs inflation at 3.8-4 percent.

While RBI acknowledged that a large part of the inflationary pressures are emerging from vegetable prices, which may prove to be temporary, it also flagged off price pressures in other food items such as milk, pulses, and sugar. Both the 3-month and 1-year ahead inflation expectations have risen sharply, the committee had said.

While RBI governor Shaktikanta Das pegged the pause as ‘temporary’, economists believe the MPC may wait for softer inflation prints and information on the government’s finances before cutting rates again.

The sharp uptick in the headline CPI inflation in November 2019, justifies the pause undertaken by the prescient MPC in its last policy review. ICRA expects the CPI inflation to spike further to 5.8-6.0 percent in December 2019, close to the upper threshold of the MPC’s medium term target, driven by the recent revision in telecom tariffs. As a result, we expect the MPC to remain on hold in its February 2020 policy review.
Aditi Nayar, Principal Economist, ICRA

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