India’s retail inflation rises to four-month high in December on higher food prices

By Nikunj Ohri

NEW DELHI (Reuters) -India’s annual retail inflation rose at the fastest pace in four months in December, driven by a rise in prices of some food items, raising expectations that the central bank will stay away from interest rate cuts for some time.

Annual retail inflation rose to 5.69% in December from 5.55% the previous month, above the central bank’s 4% target, Indian government data showed on Friday.

A Reuters poll of 56 economists had forecast a rate of 5.87%.

Food inflation, which accounts for nearly half of the overall consumer price basket, was at 9.53% in December, up from 8.70% in November as prices of vegetables, pulses and spices rose.

“The outlook for the inflation for certain items like rice, wheat and pulses remains somewhat vulnerable,” said Aditi Nayar, an economist at ICRA, who does not expect rate cuts before August 2024.

The Reserve Bank of India’s (RBI) monetary policy committee left the benchmark repo rate unchanged at 6.50% for a fifth consecutive meeting last month. With inflation remaining above the central bank’s target, monetary policy could remain in “restrictive territory”, the RBI said in a report last month.

Core inflation, which strips out volatile food and energy prices, was estimated to be 3.8%-3.89% in December, compared with 4.05%-4.2% in November, according to two economists.

The Indian government does not release core inflation figures.

Core inflation has declined to a four-year low, said Devendra Pant, chief economist at India Ratings & Research.

Declining core inflation, which can often reflect weak demand in the economy, is a “conundrum” at a time of strong economic growth, said Pant.

The Indian economy is seen growing at 7.3% in the financial year ending March 31, 2024, according to the government’s estimates.

Prime Minister Narendra Modi, who remains popular among voters and is aiming to win a third term in a general election due by May, has taken several steps to contain food prices.

Some economists expect retail inflation could remain around 4.5% this year, above the central bank’s target, delaying the cut in policy rates.

“We see the RBI’s Monetary Policy Committee embarking on its first rate cut in the second quarter of fiscal 2025,” said Garima Kapoor, an economist at Elara Capital.

(Reporting by Nikunj Ohri and additonal reporting by Manoj Kumar; Editing by Toby Chopra and Alex Richardson)