Skip to main content

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

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

Popular posts from this blog

Deposit gush:-CA Institute Bats for Special Audit

Obligation for the Month of May 2017

Obligation for the Month of May 2017 Event DateActApplicable FormObligation6-May-2017Service TaxChallan No.GAR-7E-Payment of Service Tax for April by Cos7-May-2017Income TaxForm No.27C (TCS)Submission of Forms received in Apr  to IT Commissioner7-May-2017Income TaxChallan No.ITNS-281Payment of TDS/TCS deducted/collected in Apr10-May-2017ExciseER-1Return for Non SSI assessees for Apr10-May-2017ExciseER-2Return for EOUs for Apr10-May-2017ExciseER-6Return by units paying duty >  1 crore (CENVAT + PLA) for Apr12-May-2017D-VATBE - 2Advance information for 2nd fortnight of May of functions with booking cost > Rs 1 lakh in Banquet Halls,hotels etc. in Delhi15-May-2017D-VATDVAT-20Deposit of DVAT TDS for  Apr15-May-2017Income TaxForm 27EQTCS Returns by ALL Collectors15-May-2017Providend FundElectronic Challan cum Return (ECR)E-Payment of PF for Apr15-May-2017D-VATDVAT-48 Return of DVAT TDS for quarter ending March21-May-2017ESIESI ChallanPayment of ESI of Apr21-May-2017M-VATMVAT ChallanPa…

RBI minutes show MPC members flagged upside risks to inflation

RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …