Inflation probably breached RBI target in December: report

Bengaluru: Rising vegetable prices probably pushed retail inflation to its highest in more than five years in December, exceeding the Reserve Bank of India’s medium-term target of 4 per cent for a third straight month, a Reuters poll of economists predicted.

The median forecast in the Jan. 3-8 Reuters poll of nearly 50 economists predicted India’s annual consumer inflation rose to 6.20 per cent in December from November’s 5.54 per cent.

Over 60 per cent of respondents expected retail inflation, due for release on January 13, to breach the upper band of the RBI’s buffer range of 2 per cent to 6 per cent, with the highest forecast for 7.01 per cent.

Last month, onion prices - an important food in Indian households - soared tenfold, contributing to a surge in food inflation that has picked up steadily since March.

“The single biggest factor for this increase in headline inflation is onions. While there is some sort of increase in other food prices as well, we don’t see that to be extremely alarming,” said Aastha Gudwani, India economist at BofA Global Research.

But core inflation, which excludes volatile components like food and energy, has declining, highlighting weak underlying demand.

Therefore, many economists do not expect the rise in consumer price inflation to prompt any policy move by the central bank at its next meeting, in February.

“I don’t think a hike is something the RBI would be looking at right now, because they also need to see what is happening to growth - that is a big concern right now,” said Sakshi Gupta, senior India economist at HDFC Bank.