By Peter Bergman (MoneyAmped.com)
In November, retail inflation experienced a notable acceleration in India, marking its most rapid growth in three months. This surge can be attributed to the increased prices of food items. Consequently, this development has reinforced the prevailing anticipation that the central bank will refrain from implementing interest rate reductions shortly.
Annual Inflation Rose, but Less Than Expected
Annual price inflation rose to 5.55% in November from 4.87% the month before. Nevertheless, the figure above fell short of the projected 5.70% rate per the Reuters poll conducted among economists.
The food inflation rate, constituting a significant portion of the overall consumer price basket, experienced an increase from 6.61% in October to 8.70% in November.
In November, four economists estimated that core inflation, a measure that excludes the impact of volatile prices for food and energy, ranged between 4.05% and 4.2%. This figure indicates a slight decrease from 4.20% to 4.28% observed in October. The Indian government refrains from disclosing core inflation figures.
According to Aditi Nayar of ICRA, the increase in inflation during November was solely propelled by the food and beverages sector, while all other categories either experienced a decrease or maintained the same level of inflation compared to October.
Reserve Bank of India’s Fears Confirmed
The most recent publication affirms the Reserve Bank of India’s (RBI) concerns regarding the impact of fluctuating food prices on the escalation of retail inflation. In the previous week, the bank maintained the policy rates unchanged for the fifth successive gathering due to persistent inflationary pressures surpassing the target and robust economic expansion.
In November, there was a notable increase in the prices of cereals, with a rise of 10.27% compared to the corresponding month in the previous year. Similarly, the prices of vegetables experienced a significant surge of 17.7% during the same period.
Pulses witnessed a substantial increase of 20.23%, while spices observed a notable rise of 21.55%. Furthermore, fruit prices also exhibited an upward trend, with a growth of 10.95% in November compared to the same period last year.
In October, there was a notable increase in the prices of various food items. Cereals experienced a rise of 10.65%, while vegetables saw a modest increase of 2.7%. Conversely, pulses witnessed a substantial surge of 18.79%, while spices experienced a significant spike of 22.76%. Lastly, fruits observed a moderate increase of 9.34% in prices during this period.
The inflation rate observed in November has consistently stayed within the upper tolerance band of 2-6% set by the Reserve Bank of India (RBI) for the third consecutive month. However, it is important to note that the inflation rate surpasses the desired target of 4%.
In a recent statement, the Reserve Bank of India (RBI) Governor Shaktikanta Das highlighted that the potential risks associated with food inflation obscured the near-term economic prospects. This could increase during November and December even though core inflation, which excludes the volatile components of food and fuel prices, has generally shown a downward trend.
India implemented measures to mitigate inflationary pressures after July, when the inflation rate experienced a notable surge, surpassing 7%. The government has implemented export restrictions on certain commodities such as rice, wheat, sugar, and onions. The government has announced its intention to implement additional measures to mitigate the impact of food inflation.
India’s economic expansion during the year’s initial half exhibited a commendable growth rate of 7.7%.
In the words of Thamashi De Silva from Capital Economics, the indication of elevated food prices and robust economic growth leads us to anticipate that the Reserve Bank of India (RBI) will commence the process of policy easing solely in the latter half of 2024.
