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Retail inflation rate based on Consumer Price Index (CPI) rose to a three-month high of 4.9 per cent in November against 4.48 per cent in October.
But since headline rate is still in the targeted inflation band of 2-6 per cent, experts feel that this may not lead to interest rate revision as of now. Also, considering the overall economic growth requirement and the subdued industrial growth, the expectation is that the Monetary Policy Committee (MPC) will continue with status quo not just in terms of the rate but also in their overall stance.
Higher core-inflation (overall inflation minus that of food and fuel) of 6.08 per cent led the rise in headline inflation. Experts say central excise duty relief on petrol and diesel and cut in VAT by most State governments have not provided much relief to retail inflation. So, while inflation of both ‘transport and communications’ and ‘fuel and light’ declined in November 2021, it still remained in double-digit.
Supply shortages
Devendra Kumar Pant, Chief Economist with India Ratings & Research (Ind-Ra), believes that inflation of commodities such as health, fuel and light, and transport and communications has become structural. Supply shortages are further aiding higher inflation, which cannot be termed as transitory. The signs in most economic data, be it IIP or inflation, reflect more than the base effect. “CPI is likely to remain high till January 2022 and moderate after that. India ratings believes retail inflation is likely to remain in 4-6 per cent range most of the time in near future,” said Pant.
Swati Arora, Economist with HDFC Bank, said that the inflation headline, though higher compared to the previous month, surprised positively as it was lower than expectation. While core inflation remained elevated above 6 per cent, higher food prices (led largely by vegetable prices) did contribute to the rise in headline inflation. Within core, health inflation and recreation and amusement continued to remain firm.
CPI inflaton
“Going forward, a hike in telecom tariffs, plausible supply-chain disruptions, a hike in GST rate on clothing and footwear along with waning of a favourable base are likely to weigh on the inflation readings. CPI inflation is expected to hover around 6 per cent in December,” she said.
Vivek Rathi, Director (Research) with Knight Frank India, said that fuel and transport costs remained the main constituents that pushed the level higher in this reading. These categories exert cost pressure on various input items. However, the extent to which increased costs are passed on to consumers will depend on the strength of demand in respective product categories.
“Although not a concern at present, elevated price levels will discomfort consumers when demand levels improve. Considering the high inflationary expectations, RBI will be watchful of the inflation level, and we hope that benign interest rates continue considering capital intensive sectors like real estate are strongly influenced by credit costs at both consumer and developer level,” he said.
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