Retail inflation at 14-month high of 5.41%; food prices spike

New Delhi: Retail inflation rose for the 4th-month in a row in November, accelerating to 14-month high of 5.41 percent on sharp pickup in food prices, posing a challenge to further easing of monetary policy by the Reserve Bank.

The wholesale price inflation, although in negative zone for the 13th consecutive month, also moved up to (-)1.99 percent in November as food articles including pulses and onion turned costlier. It stood at (-)3.81 percent in October.

The consumer price-based retail inflation rose to 5.41 percent in November, from 5 percent in October.

The rising retail inflation will add to worries of RBI Governor Raghuram Rajan who had left interest rate unchanged earlier this month, targeting to contain retail inflation at 5 percent in the medium term. The borrowing costs in India are among the highest across major Asian economies.

RBI is bracing itself for an expected increase in interest rate by the US Federal Reserves this week and a higher retail inflation will only add to his worries.

Besides, implementation of the 7th Pay Commission recommendations on pay hike for central government employees may further stoke price pressures. The recommendations are to take effect from January.

India Ratings & Research Chief Economist Devendra Kumar Pant said: "Both Wholesale Price Index and Consumer Price Index inflation rates, although marginally higher than our expectations, are according to trend. Favourable base effect is waning out and this will push both wholesale and retail inflation in coming months."

Retail food inflation shot up in November at 6.07 percent, up from 5.25 percent recorded a month ago.

Industry chamber Assocham said since the WPI and CPI numbers are broadly in line with expectations it gives room to RBI for further rate cut to ensure pick up in domestic investment cycle.

"The RBI, which is guided by CPI inflation, needs to look at generalised deflationary pressures that the CPI may not adequately capture," Assocham said.

Pant said: "Chances of any more monetary easing in this fiscal are almost zero". The RBI takes into account retail inflation while deciding monetary policy.

As per the retail inflation data, the rate of price rise in pulses and products shot up to as high as 46.08 percent, while for vegetables it almost doubled to 4 percent.

Seasonal fruits turned costlier further in November with inflation printing at 2.07 percent.

Inflation in meat and fish category was 5.34 percent; food and beverages - 6.08 percent and that for non-alcoholic beverages it stood at 4.55 percent.

However, inflation in milk and products, eggs and fuel and light category was slightly down in November.

In the rural areas, retail inflation rose to 5.95 percent and for urban sector it was at 4.71 percent during the month.

ICRA Chief economist Aditi Nayar said that high CPI inflation number is not a cause for alarm, and forecast that retail inflation would broadly remain around current levels for the remainder of fiscal ending March 2016.

"We continue to expect CPI inflation to undershoot the January 2016 (RBI) target of 5.8 percent," Nayar said.

Earlier this month, Rajan had left the key interest rate unchanged in view of rise in retail inflation and likelihood of capital outflows on a possible US Fed rate hike around mid-December.

As regards WPI inflation data, the rate of price rise in food articles shot up to 5.20 percent in November, as against 2.44 percent in October.

Inflation in pulses and onion stood at 58.17 percent and 52.69 percent, respectively. The rate of price rise in case of vegetables was 14.08 percent during November.

The rate of price rise in potato was (-)53.72 percent, while in egg, meat and fish it was (-)2.24 percent.

"The upside surprise in November WPI is largely concentrated in food. The broad-based food price pressure likely reflects the adverse impact of weak monsoons, although inflationary pressures in the manufacturing sector remain low due to ample spare capacity," Nomura said in a report.