Dashing hopes of interest rate cut in the near future, the retail inflation has breached the RBI’s comfort level as it increased to 5.21 per cent in December, mainly driven by faster rises in prices of food items, egg and vegetables. As per the Consumer Price Index (CPI), the retail inflation was 4.88 per cent in November.
The government has asked the Reserve Bank of India to keep inflation at 4 per cent, plus or minus 2 per cent. Going beyond the comfort zone will put pressure on the central bank not to cut interest rate (repo rate).
According to the data released by the Central Statistics Office (CSO), inflation for the food basket increased to 4.96 per cent in December from 4.42 per cent in the preceding month. As per the data, eggs, vegetables and fruits became costlier, while inflation moderated in case of cereals and pulses.
Last week, the CSO released gross domestic product (GDP) data which shows the country’s GDP growth at 6.5 per cent, it is the lowest in four years. The slowdown was attributed to a decrease in agricultural and manufacturing output last year. Part of the blame was directed at the adverse effects of demonetisation and poor implementation of Goods and Services Tax (GST).