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Retail inflation jumps to 5-month high in December

NEW DELHI: Retail inflation jumped to a five-month high in December on the back of higher food, beverages, clothing, footwear, fuel and light prices and posed a fresh challenge for policymakers against the backdrop of a third wave of Covid. Data released by the National Statistical Office (NSO) on Wednesday showed inflation, as measured by the consumer price index (CPI), rose an annual 5. 6% in December, up from November’s 4. 9%. Rural inflation was at 5. 4%, a shade lower than the 5. 8% in urban areas.

Separate data released by the NSO showed industrial output growth slowed to a nine-month low of 1. 4% in November, slower than the upwardly revised 4% recorded in October, led by a sluggish manufacturing sector and contraction in capital goods and consumer durables segments. The sector had shown signs of reviving after the lifting of curbs but the ongoing third wave is likely to have an impact in the months ahead.
In inflation, the food index rose to 4. 1%, higher than November’s 1. 9%. December’s retail inflation reading is a notch below the RBI’s upper inflation tolerance band. Inflation has emerged as a policy challenge in recent months but the RBI is confident that the pressure is expected to ease in the months ahead.
The retail inflation data showed oil and fats inflation at 24. 3% in December, remaining in double digits. Fuel and light inflation rose nearly 11% in December, reflecting firm global prices.
“While the CPI inflation has hardened sharply between November and December 2021, the uncertainty triggered by the third wave is sure to take precedence when the MPC (monetary policy committee) meets next month. We now see a negligible likelihood of a change in stance or re- verse repo hike in the February 2022 policy review,” said Aditi Nayar, chief economist at ratings agency ICRA.
On the slowing index of industrial production (IIP) for November, Madan Sabnavis, chief economist at Bank of Baroda, said, “The lockdown like conditions, which are in force from mid-December, and may continue till March, will keep production levels depressed and growth in the coming quarter would be in the region of not more than 3-5% even on a low base. ”

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