The sharp rise in CPI inflation to 4.88 per cent in November, beyond the RBI’s comfort zone, has dashed hopes of any rate cut. Apart from the rise in vegetable prices, core inflation (excluding food and fuel) also moved up driven by housing and increase in fuel prices.

The RBI had revised upwards its CPI inflation target for the second half of the fiscal to 4.3-4.7 per cent from the earlier 4.2-4.6 per cent citing an increase in crude oil prices and HRA under the Seventh Pay Commission.

Given that between November 2016 and January 2017 the vegetable prices had plummeted the most, base effects could lead to overall CPI inflation overshooting the RBI’s forecast in the second half of the fiscal.

What moved inflation?

The recent uptick is driven by the sharp rebound in food prices. From a negative 1.17 per cent in June(lowest reading in CPI), food inflation crept up to 4.41 per cent in November.

Inflation in eggs shot up from 0.69 per cent in October to 7.95 per cent in November, though its weightage in the food basket is very low.

But vegetables, that have the third highest weightage within food, have driven up food inflation in recent months. From 7.47 per cent in October, vegetable inflation zoomed to 22.48 per cent in November.

A look at the retail prices put out by the Ministry of Consumer Affairs, shows that since July, prices of tomato and onion have risen.

There has been a sharp 175 per cent and 138 per cent year on year rise in November in the price of onion and tomato respectively.

Other upside risks

Core CPI inflation (excluding food and fuel), still remains elevated.

Housing inflation has moved up sharply from 6.6 per cent in October to 7.36 per cent in November. Rise in global crude prices led to fuel and light inflation moving up from 6.3 per cent in October to 7.9 per cent in November.

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