In some good news for consumers, India’s annual retail inflation eased to within Reserve Bank’s tolerance level for the first time this year in November. The annual retail inflation fell to 11-month low when it rose 5.88% in November, down from from 6.77% increase in the previous month, on the back of softer rise in food prices. Analysts in a Reuters poll had predicted annual inflation of 6.40% in November.
Today’s inflation print will ease pressure on policymakers but it too soon to expect any reversal of policy stance from the RBI, say analysts. To rein in inflation, the RBI has raised interest rates by 225 basis points, including a 35 basis points hike last week. Consequently, lenders have also hiked interest rates, resulting in higher EMI outgo for borrowers.
According to November inflation data, food prices, which account for nearly 40% of the CPI basket, eased to 4.67% in November, compared with 7.01% in October, amid a softening in vegetable prices.
“Last week, the monetary policy committee also maintained its withdrawal of accommodation stance. Even though there are tell-tale signs that inflation is easing, the press remarks from governor Das were hawkish, clearly signaling that the battle against inflation is not over, and setting the stage for a 25 bps rate hike in February,” Barclays said in a note.
Last week, RBI Governor Shaktikanta Das said it would continue its fight against inflation despite the worst being “behind us”, warning against complacency.
Barclays added: “With a material shift visible in global commodity prices, especially crude, we expect inflation to continue to moderate into the target range, most likely in early 2023. From here on, the potential shift in global commodity prices, and the time it takes for them to be reflected into domestic inflation becomes critical as far as the glide path into the inflation band is concerned. Still, food prices are continuing to decline and a further drop in coming months may push headline CPI lower. We currently track December inflation at 6.0% y/y as base effects wear off, despite falling food prices. Our FY22-23 projections remain unchanged at 6.7%.”
Economists said also point out core inflation (excluding food and energy prices) could remain sticky in the coming months as price pressure will continue in health, education, clothing and personal care, among other sectors. Excluding the volatile food and energy components, core inflation was between 6% and 6.26% in November, according to three economists’ estimates, versus 5.9% to 6.3% in October.
“The core inflation remained sticky at slightly above 6%. We continue to see CPI inflation around 6% till February 2023 before dipping sharply to 5% in March and to around 4.5% in 1QFY24. The inflation trajectory is likely to be slightly below the RBI’s latest estimate. The case for a pause in the February policy itself will get stronger, especially as the next few CPI inflation prints possibly remain below 6%. However, with the focus increasing on sticky core inflation, the February policy will be a tough choice between further tightening and a prolonged pause, especially if global and domestic growth impulses start softening. The skew, for now, remains towards a last 25 bps hike followed by a prolonged pause,” said Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities. (With Agency Inputs)