The inflation rate jumped to 5.69 percent in December increasing for the fourth consecutive month, and RBI’s tension may increase

Inflation based on the Consumer Price Index (CPI) in India rose to a four-month high of 5.69 percent in Dec’23. Retail inflation was 5.55 percent in Nov’23 and 5.72 percent in Dec’22. According to Retail Price Index data released by the government on Friday, food category prices were overall higher by 9.53 percent on an annual basis in December 2013. Food inflation was 8.7 percent in November’23 and 4.9 percent in December last year.

The Reserve Bank of India takes into account retail inflation in determining its monetary policy and has been targeted to keep the retail inflation rate in the range of 2 to 6 percent. Retail inflation is currently on an upward trend within this range, but as its pressure increases, it will be difficult for the central bank to reduce the policy interest rate. The policy interest rate of the Reserve Bank is currently 6.5 percent, at which it lends immediate cash to banks. Over the past few months, inflation has seen a rise mainly due to higher prices of vegetables and fruits. Weather-related supply chain disruptions were also a factor in the increase in prices of essential commodities.

Data from the Ministry of Statistics and Programs showed that in December 2023, inflation in the vegetables category was 27.64 percent and inflation in the fruits category was 11.14 percent. In Sambar, the price level of the fuel and electricity category decreased by 0.99 percent on an annual basis. Vivek Rathi, director, of research, at Knight Finance India, said a sustained rise in food prices led to inflation in December 2023, but core (manufactured products category) inflation continued to moderate. He has described this as a sign of reducing price pressure for families.

Aditi Nair, the chief economist of rating agency ICRA, said on these figures that prices of some commodities like rice, wheat, and pulses remain under pressure, and along with the expected decline in Kharif production, the ongoing Rabi sowing is also affected due to the effect of El Nino. There are chances of it happening. He said, “We estimate that due to the comparative base effect, the retail inflation rate figure for January 2024 may come down to 5.2 percent.”

Rajni Sinha, Chief Economist, CareAge Rating, said that the trend of decline in inflation in the fuel and power category continued in December and the core inflation remained below four percent, the increase in retail inflation during the month under review was limited.

Madhavi Arora, the chief economist at MK Global Financial Services, said the core retail inflation rate is expected to decline further to 3.77 percent in December 2023 but there is a need to keep an eye on food prices. He said, “We estimate that in the financial year 2024-25, retail inflation will be around 5.2 percent (estimated 5.37 percent in the current financial year) and the core inflation  rate will come down to around 4 percent (estimated 4.42 percent in the current financial year).” ”The Reserve Bank has estimated CPI inflation rate to be 5.4 percent in the current financial year. Also, read this.