Skip to main content

Surge in retail inflation in November brings RBI’s fears to reality

By
Surge in retail inflation in November brings RBI’s fears to reality
A higher than expected retail inflation in November has upset RBI’s statistics, and the prospect of a rate hike is looking much closer now
The Consumer Price Index (CPI)-based inflation surged to 4.88% in November, the fastest month-on-month increase in 16 months, driven by soaring vegetable prices and a rise in fuel inflation.Vegetable prices jumped 22.48% year-on-year, the steepest since the double-digit inflation episode in early 2013. Considering prices of vegetables had fallen 10% in November last year, there is a statistical base effect here.
Food inflation doubled to 4.41% in November from 2.26% in October and the pickup in price rise was reflected in almost all categories except pulses, prices of which continued to fall. Vegetables may well be the main culprit but the quickening of inflation is not restricted to the food segment alone
The recent surge in global crude oil prices was reflected in the rise in fuel inflation. Fuel prices increased for the sixth month in a row, rising 7.92% in November. Considering that the rise in oil prices is continuing unabated, this is not a good sign. Quickening of fuel inflation means that overall retail inflation and even food prices would continue to edge up in the coming months as fuel permeates every activity of the economy.
The effect of the wage hikes for government employees was evident from the rise in housing inflation to 7.36% from 4.98% a year ago.The most disturbing sign is however the rise in core inflation, which the Reserve Bank of India (RBI) tracks closely. Core inflation, which excludes food and fuel, rose to 4.83% and this puts it firmly above the central bank’s medium-term target of 4%. Core inflation has been historically stickier than other components, especially downwards.
If one looks at RBI’s fan chart in the December policy, the central bank had given ample warnings on where inflation is headed. In fact, RBI had raised its inflation forecast for the second half of the fiscal year for the second time to 4.3-4.7%.The markets had expected a sharp rise in retail inflation in November and consensus estimates had put CPI inflation around 4.45%. But the magnitude of the rise has stumped many.
The central bank’s survey of professional forecasters had put retail inflation at 4.4% and core inflation at 4.5% by March. The November inflation has upset these statistics and the prospect of a rate hike is looking more imminent now.The debt market environment has already changed, with the yield on 10-year government securities hitting an intra-day high of 7.23% on Tuesday. With this inflation print, bond yields are likely to head even higher.
The Mint, New Delhi, 13th December  2017

Comments

Post a Comment

Popular posts from this blog

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

By
  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...
Post a Comment
Read more

Luxury carmakers urge clarity on GST rates to boost festive season sales

By
  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...
Post a Comment
Read more

Sebi proposes tighter norms for green bond third-party reviewers

By
  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...
Post a Comment
Read more