Retail inflation falls to one year low of 5.72% in December

• Retail inflation in the food basket was at 4.19% in December as against 4.67% in November.
  
  
• The prices of fruits and vegetables, oils and fats, and even meat and fish fell in December 2022 as compared to the month before.
  
  
• The index of industrial production (IIP) for November rose to 7.1%, as against 4% in October 2022.
  
  
• We believe that the RBI will continue to increase rates in February policy by 25 bps, which can be the last hike for this cycle, says a Bank of Baroda report.

Retail inflation declined to a one-year low of 5.72% in December 2022, mainly due to softening prices of food items, according to official data released on Thursday. The Consumer Price Index (CPI) based retail inflation was at 5.88% in November 2022.

The CPI inflation in December 2022 is close to what it was in December 2021, at 5.66%.

As per the data released by the National Statistical Office (NSO), inflation in the food basket was at 4.19% in December as against 4.67% in November.

After remaining above the Reserve Bank of India's upper tolerance threshold of 6% since January 2022, retail inflation declined in November to 5.88% for the first time in FY23.

The prices of fruits and vegetables, oils and fats, and even meat and fish fell in December 2022 as compared to November 2022.

“There are still concerns on the non-food side as the miscellaneous category has inflation of 6.2%, clothing and footwear 9.6% and fuel at 11%. This will remain sticky as the government is not lowering excise duties on fuel, while companies are still in the process of passing on the higher input costs,” said Madan Sabnavis, chief economist at Bank of Baroda.

Personal care and household goods witnessed higher input costs that have led to inflation of 8.1% and 7.4% respectively.

The government also released factory output data on Thursday. The index of industrial production (IIP) for November rose to 7.1%, as against 4% in October 2022.

The manufacturing segment grew at 6.1%. The consumer durable and non-durable segments both registered healthy growth rates of 5.1% and 8.9% respectively.

“While the progress is overall good with the IIP growing by 5.5% for the 8-month period, it needs to be seen if this can be sustained as the festival season ends in December. Also the willingness of governments – both states and centre to keep their capex rolling would largely drive future growth in the infra sector,” Sabnavis said.

‘Arjuna's eye on inflation’

The RBI which claims to have been keeping an ‘Arjuna's eye on inflation’ has hiked key interest rates by five times since May 2022. Cumulatively, the rates rose by 2.25% across five hikes, and the repo rate now stands at 6.25%.

RBI governor Shaktikanta Das has been repeating in his policy statements that the central bank is keeping an ‘Arjuna’s eye’ on inflation i.e. watching it closely.

The retail inflation or Consumer Price Index (CPI) has been above its tolerance limit for three quarters straight as global supply chain issues pushed up fuel prices in addition to that of essential food items like wheat and edible oil, since the start of this financial year.

“Going forward, food inflation is likely to moderate with the usual winter softening and the likelihood of a bountiful rabi harvest, but pressure points remain in the form of prices of cereals, milk and spices,” Das has said in a statement on December 7, 2022 as he announced his fifth straight interest rate hike.

“We believe that the RBI will continue to increase rates in February policy by 25 bps which can be the last hike for this cycle as the numbers in the coming months would come down due to the base effect,” said Sabnavis.

(With inputs from PTI)

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