Inflation hits 17-month high

Published Jan 13, 2018, 2:51 am IST
Updated Jan 13, 2018, 2:51 am IST
Low base from November 2016 helps India Inc’s output grow 8.4%
Fuel and light inflation rose by 7.90 per cent in December. (Representational Image)
 Fuel and light inflation rose by 7.90 per cent in December. (Representational Image)

New Delhi: Retail inflation touched 17-month high in December due to strengthening of food and crude oil prices, dashing hopes of interest rate cut in the near future. The industrial production data, which was also released on Friday, too hit a 17-month high of 8.4 per cent in November.

Based on the Consumer Price Index (CPI), retail inflation, which was at 4.88 per cent in November and 3.41 per cent in December 2016, surged to  5.2 per cent — a level well past RBI’s comfort.  


Told to keep the inflation at 4 per cent, RBI, which has seen inflation rise beyond the comfort zone, will be under pressure to not slash the interest rate.

Food inflation rose to 4.96 per cent in December from 4.42 per cent in November. What will hit the common man is that the prices of vegetable have risen by 29 per cent, egg 9 per cent, fruits 6.63 per cent, meat and fish by 4 per cent. 

Fuel and light inflation rose by 7.90 per cent in December. 

However, going forward crude oil prices may become a headache for the government. Crude prices have rallied with Brent crude above $70 a barrel on Thursday for the first time since December 2014. 

Despite a cut in taxes, retail petrol prices have risen 5.6 per cent and diesel by 9 per cent since June in Delhi.

“The hardening of the CPI inflation in December 2017 was led by the sharp jump in inflation for housing, as well as a base-effect led uptick in food inflation, with a limited impact of the cut in GST rates. The uptick in the CPI inflation to a 17-month high in December 2017 validates the caution displayed by the Monetary Policy Committee (MPC) in its recent reviews,” said Aditi Nayar, principal economist of Icra.

“Given that the MPC responded to the period of transient ‘low’ inflation with only one rate cut of 0.25 per cent cut in August 2017, we do not expect it to commence hiking rates unless the CPI inflation is forecast to persist above 5 per cent for at least two quarters,” she added. 

RBI will hold its next policy review on February 7.

Meanwhile, manufacturing sector grew by 10.2 per cent in November as compared to 4 per cent a year ago. The industry group ‘Manufacture of pharmaceuticals, medicinal chemical and botanical products’ has shown the highest positive growth of 39.5 per cent, followed by 29.1 per cent in computer, electronic and optical products and 22.6 per cent in ‘manufacture of other transport equipment’.

Capital goods output, which is a barometer of investment, grew by 9.4 per cent in November as against 5.3 per cent a year ago. Consumer non-durables, which are mainly fast moving consumer goods00, showed an output growth of 23.1 per cent as against 3.3 per cent in November 2016.

Jaikishan J Parmar, research analyst at Angel Broking said that increase in industrial production  could be partially attributed to the base effect as November 2016 was the month when production had taken a hit due to note ban. 

“While the base effect is a major explanation for the sharp rise in IIP, there are two key positive takeaways for the markets. Firstly, cement has emerged as a key contributor to the IIP growth and that promises positive downstream impact. Secondly, in terms of use-based IIP, capital goods and construction goods have seen a sharp positive growth. That is a good portent for the revival of the capital investment cycle,” he added.