Retail inflation spikes to 7.59% in January; December IIP at -0.3%

Epoch Times

Epoch Times

Retail inflation, calculated on the basis of Consumer Price Index (CPI), inched upwards to 7.59 per cent during January, showed data released by the National Statistics Office (NSO) on Wednesday.

Mining output rose 5.4% in December compared to a growth of 2.7% in November. Food price inflation for January 2020 stood at 13.63 per cent, in comparison to (-) 2.24 per cent recorded in January 2019. Analysts polled by Reuters had forecast industrial output to rise 1.8 per cent.

Today's figures are slightly above December's 7.35 percent and the highest since May 2014. IIP has unexpectedly contracted to 0.3 per cent in December from 1.8 per cent in November. Prices of vegetables shot up by 50.9% in January compared to 60.5% in December.

Prices of pulses and related products rose by 16.71 per cent during the month. Outside the food and beverages category, inflation in "transport and communication" rose to 6.08% from 4.77% in December.

"The internals of the food inflation are worrying, given a broad-based uptick across categories that tend to be sticky, such as proteins, and a narrower-than-expected reduction in inflation for vegetables".

Rahul Gupta, head of research (currency), Emkay Global Financial Services, said, "It is the consecutive second month that the CPI has breached upper band of the RBI's inflation target. if inflation continues to hover above 6 per cent, we don't expect the RBI (Reserve Bank of India) to cut interest rate or change its accommodative policy stance".

Core inflation, which strips out the more volatile components like food, nevertheless remains low, with even housing inflation staying steady at 4.2% in January 2020, compared to 4.3% in December 2019.

Nayar added that regardless of the level of retail inflation, the stance of the RBI for the monetary policy is likely to be retained as accommodative, for as long as the MPC considers the output gap to be negative.

"The timing and magnitude of the next rate cut will depend on how quickly inflation appears to be reverting back towards 4 per cent". The central bank had kept its repo rate unchanged at 5.15% last week, despite slowing growth, and revised up its inflation projections, estimating it would range between 5.0% and 5.4% in the first half of the upcoming fiscal year.

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