CPI Inflation Eases To 11-Month Low Of 5.88% In November

Inflation in food and beverages was at 5.07%, against 7.04% in October.

<div class="paragraphs"><p>(Source: DICSON/Unsplash)</p></div>
(Source: DICSON/Unsplash)

Retail inflation fell below the central bank's upper band of 6% for the first time since December last year, led by a sharp fall in vegetable prices.

The Consumer Price Index inflation eased to 5.88% in November, compared to 6.77% in October, according to data released by the Ministry of Statistics and Programme Implementation, on Monday.

A Bloomberg poll of 32 economists had estimated a reading of 6.35%.

Inflation in food and beverages was at 5.07%, against 7.04% in October. Vegetable prices fell by 8.08% over a year earlier, compared with a rise of 7.77% in the previous month.

Core inflation—excluding food and fuel—also eased to 6.51%, compared to 6.43% in October, according to Bloomberg. This is the highest since at least 2015.

To quell inflation, the Monetary Policy Committee has raised the policy repo rate to 6.25% so far.

November CPI inflation was much lower than expected, with food prices momentum softening sharply compared to the last few months, said Suvodeep Rakshit, senior economist at Kotak Institutional Equities. While food inflation softened, core inflation remained sticky at slightly above 6%, Rakshit said.

Aditi Nayar, chief economist at ICRA also said that the CPI inflation offered relief, with the sharp easing reflecting a base-effect led cooling in food inflation and a correction in vegetable prices, even as there was a worrying sequential uptick in the annual inflation for miscellaneous items, fuel and light, tobacco and intoxicants. 

Nearly 65% of the last year’s final rabi area has already been covered in the ongoing season till Dec. 2, 2022, recording an annual growth of 6.4%, led by mustard, wheat, rice and maize, aiding the prospects for the rabi output, Nayar said. Nevertheless, the ongoing supply constraints for spices, as well as higher feed costs for livestock and their subsequent impact on milk prices, are likely to keep the retail prices of these items firm in the near term, she said.

"We continue to see CPI inflation around 6% till February 2023 before dipping sharply to 5% in March and to around 4.5% in Q1 FY24," Rakshit said.

The case for a pause in the February policy itself will get stronger, especially as the next few CPI inflation prints possibly remain below 6%. However, with the focus increasing on sticky core inflation, the February policy will be a tough choice between further tightening and a prolonged pause, especially if global and domestic growth impulses start softening, he said.

Inflation Internals

  • Cereal prices rose 12.96% annually in November, compared to 12.08% in October.

  • Inflation in meat and fish was at 3.87%, compared to 3.08% last month.

  • Inflation in milk was at 8.16%, compared with 7.69% in the previous month.

  • Inflation in oils and fats was at -0.63%, against -2.15% in October.

  • Pulses inflation was at 3.15%, compared with 2.78% in the preceding month.

  • Clothing and footwear inflation was at 9.83%, against 10.16% a month ago.

  • Housing inflation stood at 4.57%, compared with 4.58% in November.

  • Fuel and light inflation stood at 10.62%, against 9.93% in November.

What Led The Fall? 

On a sequential basis, vegetables saw a sharp deceleration in prices, contracting by 8.3% from the previous month.