CPI inflation: Retail inflation rises to 7.35% in December

Daniel Fowler
January 13, 2020

As the table below shows, the "vegetables" inflation rate surged to 60.5% in December 2019 as against 35.99% in November 2019. 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.

The prices of onion - an important food item in many Indian households - also contributed to the uptick in food inflation.

Retail inflation based on consumer price index (CPI) accelerated to 7.35 per cent in December a year ago as against 5.54 per cent in November mainly on account of rising vegetable prices, government data showed on Monday.

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.

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Prior to this high, retail inflation had witnessed a spike of 7.39 per cent in July 2014. Pulses and products recorded an inflation of 15.44% in December, against 13.94% in November. The RBI is mandated to keep inflation between 2-6%, with a margin of 2% on either side.

The RBI, which mainly factors in the CPI based inflation, is scheduled to announce its next bi-monthly monetary policy on February 6. This is up from 5.54% in November and 4.62% in October, as per data released by the Central Statistics Office (CSO).

Commenting on the inflation figures, Deepthi Mary Mathew, Economist at Geojit Financial Services said "It was more or less expected that the inflation rate for December will breach the upper band of 6 per cent, due to the rising vegetable prices". Prices of fuel and light increased the least, by just 0.7%.

The data assumes significance as the Reserve Bank, in its latest monetary policy review, maintained key lending rates on account of rising retail inflation. Notwithstanding the marginal rise in Core CPI in Dec19, we expect it to continue to stay soft (3.7% y/y in Dec19 vs. 5.7% in Dec18) given benign demand conditions.

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