With skyrocketing prices of vegetables, pulses and fruits, retail inflation rose to 5.41 per cent in November, showing fourth straight month of uptick and alerting the Reserve Bank of India's comfort level to some extent, while, at the same time, wholesale price index (WPI) also showed a deflationary trend and moved up to (-) 1.99 per cent in the same period as food articles such as pulses and onion turned costlier.
The Consumer Price Index (CPI)-based retail inflation in October was 5 per cent - the central bank's medium-term target. In November last year, it was at 3.27 per cent. Overall, consumer food inflation rose to 6.07 per cent in November, according to the Government data released on Monday.
However, economists feel that the CPI number, at present, running lower than the targets of around below 6 per cent set by Reserve Bank of India (RBI), may rise to 5.5 per cent going forward. Considering a base case scenario, 25 basis points (bps) rate cut by the RBI is expected before the coming budget.
"The CPI data, though, will have a minor effect until the Fed sheds it tone. I expect RBI to cut base rate once before the budget declaration or even before the policy announcements, said Jayesh Mehta, Managing Director and Country Treasurer, Bank of America.
Recently, RBI chief Raghuram Rajan had left the key interest rate unchanged in view of rise in retail inflation to 4-month high and likelihood of capital outflows on a possible US Fed rate hike around mid-December.
But India Ratings & Research's Chief Economist Devendra Kumar Pant has a different take on this trend. "Both WPI and CPI inflation although marginally higher than our expectations is according to trend. Favourable base effect is waning out and this will push both wholesale and retail inflation in coming months. Pulses inflation can pose a threat to fight against inflation and mainly instrumental in pushing retail in the month of November," Pant said.
Earlier on Monday, the Government also separately released the wholesale price index which showed a deflation of 1.99 per cent, marking 13th consecutive month of decline in wholesale prices, but the year-on-year fall in prices is getting less severe, while the wholesale inflation was -3.81 per cent in October.
But retail inflation in pulses and products category shot up to as high as 46.08 per cent during the month. The rate of price rise in vegetables almost doubled to 4 per cent in November, while that for cereals and products category it stood at 1.70 per cent. Seasonal fruits turned costlier further in November with inflation printing at 2.07 per cent. Inflation in meat and fish category was 5.34 per cent; food and beverages - 6.08 per cent and that for non-alcoholic beverages it stood at 4.55 per cent.
However, inflation in milk and products, eggs and fuel and light category was slightly down in November. In the rural areas, retail inflation rose to 5.95 per cent and for urban sector it was at 4.71 per cent during the month.
As far as the WPI inflation is concerned, the data has showed that it is the 13th month in a row when the wholesale inflation remained in the negative territory. It has been in the negative zone since November last year.
"The WPI inflation has been rising for three months in a row and was (-)3.81 per cent in October. In November last year, it was (-) 0.17 per cent," the official data showed, saying that food inflation has shot up to 5.20 per cent in November, as against 2.44 per cent in October. "Inflation in pulses and onion stood at 58.17 per cent and 52.69 per cent, respectively. The rate of price rise in case of vegetables was 14.08 per cent during November," it said.
Reacting the WPI numbers, A Didar Singh, Secretary General of FICCI said, "Manufacturing segment prices continue to remain depressed which reflects the persisting weak demand conditions and demand needs to gather steam for investments to see a sustained improvement. Though the IIP numbers reported last week indicated a strong pickup in growth, it needs to be seen in a broader light and the corporate sector performance is yet to turnaround."