India's retail inflation rises to three-month high of 4.9% in November

Remains within RBI's target range for fifth month

India’s retail inflation rate rose to a three-month high of 4.91 per cent in November from 4.48 per cent in the previous month, despite the Centre and states reducing taxes on petrol and diesel.

This was primarily because of a rise in food inflation to 1.87 per cent from 0.85 per cent over this period, even as prices of vegetables, except for some items such as tomatoes, continued to fall. Besides this, a surge in input prices prompted companies to increase prices of their products and services as demand strengthened.

Though the consumer price index (CPI)-based inflation rate has not reached alarming levels yet, staying well within the Reserve Bank of India’s (RBI’s) target range of 2-6 per cent for the fifth straight month in November, experts cautioned that it could rise further, particularly in services, when demand improves.

ICRA Chief Economist Aditi Nayar said, “With input price pressures forcing producers to raise prices in many sectors, the November inflation accelerated slightly faster than we had expected, shrugging off the favourable base effect and the cut in fuel taxes.”

Inflation had a high base of 6.93 per cent in November last year.

The Union government’s move to cut petrol prices by Rs 5 a litre and diesel prices by Rs 10 a litre from November 4, and a cut in value added tax by several state governments, had softened inflation in these items. While inflation in petrol fell to 23.78 per cent in November from 27.28 per cent in the previous month, that in diesel moved down to 22.45 per cent from 31.76 per cent over this period.

Food items have the highest weighting of 39.06 per cent in the CPI, and as such contributed to around one-sixth of the total inflation in November. However, vegetables continued to see deflation even as the rate of price fall declined from 19.43 per cent in October to 13.62 per cent in November. But, tomatoes saw inflation zooming up to 31.35 per cent in November from a deflation of 8.36 per cent in the previous month and 45.57 per cent in September.

Core inflation, which excludes food and fuels, remained sticky, rising to 5.9 per cent in November from 5.8 per cent in October. It has been at least 5.5 per cent for over a year now, and 5.9 per cent was the highest. Core inflation represents the structural part of retail inflation.

The services sector saw high inflation as health witnessed a price rise of 7.3 per cent, recreation 7.6 per cent, and transport and communication 10 per cent.

CARE Ratings Chief Economist Madan Sabnavis said this was a concern as the services sector was gradually opening. Higher costs, he said, would affect the wallet of customers. Of late, telecom companies have increased their charges, which is getting reflected here, he said.

India Ratings chief economist Devendra Pant said inflation in health, transport and communications had turned structural. “Supply shortages are further aiding higher inflation, which cannot be termed as transitory,” he said.

Madhavi Arora, lead economist at Emkay Global Financial Services, said she remained watchful of the pass-through of impending cost push pressures in core goods inflation and cost push via imported energy inflation. The re-opening-led demand revival in select contact-sensitive household services could pressure core services inflation ahead. “We see inflation averaging 5.4-5.5 per cent, which is higher than the RBI’s estimates,” Arora said.

The RBI’s monetary policy committee has pegged inflation at 5.3 per cent for the current financial year.

Vivek Rathi, director of research at Knight Frank India, said considering the high inflationary expectations, the RBI would be watchful of the inflation level.

Bottom 20% of urban poor faces highest inflation, says Crisil

The bottom 20 per cent of the urban poor faced the highest retail inflation at 5.6 per cent in November, while the rural poor faced the lowest inflation at 4.1 per cent, according to Crisil. The middle 60 per cent group witnessed the inflation rate of 4.2 per cent in rural areas and 5.5 per cent in urban areas. Food and fuel inflation constitute the highest share in their consumption basket for both.