India December Retail Inflation Rate Eases Into RBI Tolerance Band

Tuesday,   12-Jan-2021   05:41 PM (IST)

India’s retail inflation rate in December eased to below the central bank’s tolerance ceiling for the first time in at least seven months, dragged down by lower food prices, government data showed today. Retail inflation rate slowed to 4.59% in December from a year earlier, the slowest pace since at least June and sharply lagging the 5.28% median forecast in a Reuters’ survey of economists. The government left the November reading unchanged at 6.93%. Under current law, the Reserve Bank of India is mandated to target inflation at 4%, with tolerance levels stretching to two percentage points on either side. The consumer price index - the main gauge of inflation - stood at 157.3 in December, lower than November’s 158.9, the data showed.  The rate-setting Monetary Policy Committee had slashed the key repo rate by 115 basis points in March to May to boost growth in an economy wrecked by the coronavirus pandemic. However, it left the rate unchanged at a record low of 4% since then due to concerns of elevated inflation, while maintaining an accommodative stance.  Although the December print offers some relief to the central bank that has been striving to keep a lid on a runaway inflation through the past several months while boosting growth, most analysts expect the monetary policy committee to hold the key interest rate steady in next month's scheduled policy review. The RBI expects inflation to ease to 6.8% in the current quarter and to 5.8% in January-March. It projects the key price gauge in the 4.6%-5.2% band in the first half of next year. Retail food prices rose 3.41% from a year earlier in December, the pace significantly slowing from a revised 9.50% annual expansion in November.  Retail prices of vegetables contracted 10.41%, against a 15.63% rise in November, while pulses and products rose 15.98% on year in December, slower than November’s 17.91% expansion. Fuel and light prices rose 2.99% from a year earlier in December, compared with a 1.9% expansion in November. Urban housing inflation was recorded at 3.21%, versus 3.19% gain in the previous month. Brent crude, a global marker for prices, closed 8.9% higher in December and hit an eight-month high of $52.48 per barrel during the month. India imports almost 85% of its crude oil requirements. Retail inflation data for December are provisional and can be revised later.