India’s November retail inflation eases to 7%, food prices cool down

Cheaper food prices lowered India’s sequential retail price inflation in November.

Sequentially, the Consumer Price Index (CPI), which gauges the retail price inflation, rose at a slower rate of 6.93 per cent in November from 7.61 per cent reported in October.

As per the data furnished by the National Statistical Office (NSO), CPI Urban rose to 6.73 per cent in November from 7.33 per cent in October, while CPI Rural increased to 7.20 per cent last month from 7.75 per cent in October.

The Consumer Food Price Index, increased at a slower rate of 9.43 per cent in November from 11 per cent in October.

The CFPI readings measure the changes in retail prices of food products.

On a YoY inflation rate, prices of vegetables and pulses and products jumped by 15.63 per cent and 17.91 per cent, respectively, in November.

“The headline CPI inflation for November 2020 printed appreciably lower than our expectations, benefiting from stable vegetable prices at the retail level,” said Aditi Nayar, Principal Economist, ICRA.

“While this provides welcome relief, it is unlikely to prove adequate for any imminent rate easing.” Sunil Kumar Sinha, Principal Economist, India Ratings and Research, said: “Retail inflation at 6.93 per cent is still outside the comfort zone of RBI. However, core inflation (non-food and non-energy) and core-core inflation (non-food, non-energy and transport & communication) are broadly stable in the range of 5-5.79 per cent and 4.72 per cent and 4.95 per cent respectively since May 2020.”

“Inflation even in other category such as clothing, footwear, housing, household goods and services, education and health are fairly stable over the past several months. Clearly the movement in retail inflation is broadly driven by the movement in food and beverage inflation which has 46 per cent weight in the consumer price index.”

Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research, said: “The decline in the CPI inflation print in Nov 2020 to 6.93 per cent from 7.61 per cent in Oct 2020 has definitely come as a relief to the bond markets.”

“The food inflation has expectedly dropped to 8.76 per cent on a YoY basis from 10.2 per cent in Oct with a cooling down in the prices of both vegetables and animal protein items.”

In addition, Emkay Global’s Lead Economist Madhavi Arora said: “Disrupted supply chain logistics, higher operational and labour costs, higher administrative fuel costs partly contribute to the upward inflation trajectory in recent months.” “We maintain the current trajectory is not adequately reflecting the depth of underlying sluggish demand dynamics.” Meanwhile the Reserve Bank would have limited options for policy easing of interest rates as inflation would continue to remain at elevated levels in the current fiscal, analysts tracking the development have said.

According to a research report by Emkay Global Financial Services, while inflation may have peaked, consistent supply shocks have meant the inflation series is estimated to average around 6.3 per cent in FY21. This is well above the RBI confront zone and would shape easing in FY22 for some policy action to come into play by the RBI.

According to the Emkay report, retail inflation is expected to trend towards 5.8 per cent by the end of March, 2021. However, the report said that favourable base effect, the wide output gap and rebalancing of effective demand-supply dynamics will further help inflation ease to 4.8 per cent by FY22.

The RBI has projected CPI inflation at 6.8 per cent for the third quarter, 5.8 per cent for the fourth quarter 2020-21; and 5.2 per cent to 4.6 per cent in H1 of 2021-22.

While growth concerns and sub-optimal fiscal response may keep the MPC’s stance accommodative and liquidity adequate, the inflation trajectory still remains above four per cent in FY22 and thus, hints at dimming chances of further rate cuts in the coming year, the brokerage report said.

CPI inflation surprised in November 2020 with better-than-expected moderation at 6.93 per cent, driven by sharp easing in sequential food inflation, while core inflation was down marginally. Food inflation dropped to below 10 per cent, helped by easing in vegetables and cereals.