India's retail inflation rose to a six-month high of 5.59 per cent in December 2021 as compared to 4.59 per cent recorded in the same month of 2020, the government data showed on Wednesday.
There has been a consistent rise in the inflationary pressure in the past six months. Consumer Price Index (CPI) inflation stood at 4.91 per cent in November 2021. The retail inflation is inching closer to the Reserve Bank of India (RBI) upper tolerance limit of 6 per cent.
Data furnished by the National Statistical Office showed that the Consumer Price Index rose by 5.59 per cent last month from 4.91 per cent in November 2021. Similarly, on Y-o-Y basis, the rise in last month's retail inflation was faster than the 4.59 per cent rise recorded for December 2020.
Rise in retail prices was sharper in urban areas than the rural areas. Consumer Price Index (CPI) inflation rose 5.83 per cent in urban while it stood at 5.36 per cent for rural during the month of December 2021, according to the data released by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation.
Sharp rise in food prices
Food prices rose sharply. Consumer Food Price Index (CFPI) based inflation surged to 4.05 per cent in December 2021, sharply higher from 1.87 per cent recorded in the previous month. CFPI based inflation stood at 3.41 per cent in December 2020.
Urban retail food inflation surged to 5.08 per cent in December 2021 from 3.33 per cent in the previous month.
Rural retail food inflation jumped to 3.46 per cent in December 2021 from 1.09 per cent recorded in November 2021.
Experts weigh in
Aditi Nayar, Chief Economist, ICRA
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 meets next month. We now see a negligible likelihood of a change in stance or reverse repo hike in the February 2022 policy review. The duration of the current wave and the severity of restrictions will determine whether policy normalisation can commence in April 2022, or be delayed further to June 2022. With a higher inflation target, the MPC can choose to prioritize growth revival for much longer than other major Central Banks, for many of whom inflation control has become a pressing policy focus.
Upasna Bhardwaj, economist, Kotak Mahindra Bank
December headline inflation came in softer than expectations largely led by food inflation. The overall falling sequential momentum on food prices is further expected to continue in January as well but the sticky core inflation and adverse base effect poses risk of the next reading being higher than 6 percent. Overall, as global financial markets are tightening and inflation remains a worry we expect the RBI to also take more aggressive measures in the months ahead. While spread of Omicron risks postponing the decision, we continue to believe 40bps of reverse repo rate hike will happen between the February to April policy.
Rajani Sinha, Chief Economist & National Director – Research, Knight Frank India
At 5.6 percent, the CPI inflation has reached very close to RBI’s upper band of inflation tolerance. The surge in inflation in December was expected with the high base effect wearing off. Core inflation above 6 percent remains a cause of concern for the Central Bank. Even with inflationary concerns persisting, RBI is likely to be cautious and gradual in its monetary policy normalization, given the uncertainties around COVID situation and fragile economic growth scenario.
