Retail Inflation Inches Up To 7.35 per cent in December, Highest Since July 2014

New Delhi, January 13: Retail inflation inched up to 7.35 per cent in December, which is far higher than the retail inflation in the same month last year at 2.2 per cent. Earlier, the CPI inflation in November rose from 4.62 per cent to 5.54 per cent, which was highest in the last three years. The CPI number has breached the medium-term target of the Reserve Bank of India for the third month in a row, as the central government has mandated the Reserve Bank of India to keep inflation in the range of 4 per cent with a margin of 2 per cent on the either side

However, the retail inflation in rural areas rose sharply to 7.26 per cent and in urban area, it rose to 7.46 per cent in December. While the rural inflation and urban inflation in the same month last year stood at 1.50 and 2.90 per cent. Earlier, the retail inflation was around this level in July 2014 at 7.39 per cent.

“CPI inflation at 7.4 per cent is probably the highest in over 5 and a half years, which was recorded in July 2014. This is well above our forecast of 5.8 per cent. Core inflation also up and with rail freight rates and telecom rates being increased has fed into this component. Given that the fiscal picture will be known on Feb 1 and the revised numbers not on target, and with CPI inflation being above 4% in the last three months and core inflation inching up, the RBI will take another pause on interest rates on Feb 6,” says Madan Sabnavis, chief economist at Care Ratings.

As per the government data, the food inflation rose to 14.12 per cent in December as compared to -2.65 per cent in the same month last year. However, the main factor contributing to the sudden rise of retail inflation is due to intractable vegetable prices in India. As vegetable inflation in December rose to 60.50 per cent from 36 per cent in November. Onion played a crucial role in driving the retail inflation up, as the price of Onion soared exponentially within the last two months.

Keeping the rising CPI in consideration, the central bank in its last monetary policy meeting in December decided unanimously not to go for any rate cut. However, in the wake of the skyrocketing retail inflation rate, there are bleak chances for another rate cut in the next monetary policy meeting of RBI scheduled on February 6, just a few days after finance minister Nirmala Sitharaman presents the budget.