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

RBI deputy governor cautions fintech platform lenders on privacy concerns during loan recovery

By
  India's digital lending infrastructure has made the loan sanctioning system online. Yet, loan recovery still needs a “feet on the street” approach, Swaminathan J, deputy governor of the Reserve Bank of India, said at a media event on Tuesday, September 2, according to news agency ANI.According to the ANI report, the deputy governor flagged that fintech operators in the digital lending segment are giving out loans to customers with poor credit profiles and later using aggressive recovery tactics.“While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require a 'feet on the street' and empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often with poor credit profiles,” Swaminathan J said.   Fintech platforms' business models The central bank deputy governor highlighted that many fintech platforms' business models involve providing sm
Post a Comment
Read more

Credit card spending growth declines on RBI gaze, stress build-up

By
  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the rep
Post a Comment
Read more

India can't rely on wealthy to drive growth: Ex-RBI Dy Guv Viral Acharya

By
  India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI) said on Monday.Acharya, who is the C V Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), said after the Covid-19 pandemic, rural consumption and investments have weakened.We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he said while speaking at an event organised by Elara Capital here.f there has to be a trickle-down, it should have actually happened by now,” Acharya said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem.   “The bank account keeps getting bigger, hence they look for financial assets to invest in. India is closed, so our money can't go outside India that easily. So, it has to chase the limited financial assets in the country and
Post a Comment
Read more