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Retail inflation touches 15-month high of 4.88%, vindicates RBI’s concerns

Inflation rises: In a separate announcement, the government said India's annual industrial output grew a lower-than-expected 2.2 percent in October

By: Express Web Desk | New Delhi |
December 12, 2017 7:31:12 pm
Inflation rises to 15-month high The RBI had kept policy rates unchanged at 6 per cent. (File Photo)

Driven by a mark up in fuel prices, vegetables and eggs, retail inflation increased to 4.88 per cent from 3.58 per cent in October. The 15-month-high inflation number vindicates the Reserve Bank of India’s concerns about an uptick in both inflation and fiscal deficit that it had flagged last week as it kept policy rates unchanged at 6 per cent. The central bank may now be forced to tinker with the lending rate.

The fresh data will come as a jolt to the central bank since in its Monetary Policy Committee’s fifth bi-monthly review, which was headed by RBI Governor Urjit Patel, it had raised the inflation forecast for the remainder of the current financial year to 4.3-4.7 per cent. The previous high was recorded at 5.05 per cent in August last year.

The Sensex tanked 228 points to settle at 33, 227.99, while Nifty closed below the key 10,300-level, down by 82.10 points. In a separate announcement, the government said India’s annual industrial output grew a lower-than-expected 2.2 percent in October.

The numbers come after the RBI retained India’s economic growth at 6.7 per cent, marking a reversal of the declining trend witnessed in the last five quarters. The increase in inflation is sure to figure in pre-Budget meetings that Finance Minister Arun Jaitley is holding with economists and stakeholders. The first meeting was held on Monday where the economists sought more social security measures such as hike in old age pension, widow pension and full implementation of maternity entitlement benefits in next year’s Budget.

PTI reported that inflation in eggs shot to 7.95 per cent in November on an annual basis, as against 0.69 per cent in the previous month. In the fuel segment, it was 7.92 per cent, as against 6.36 per cent in October. For vegetables, inflation increased to 22.48 per cent in November from 7.47 per cent in October. Overall, the inflation in the food segment increased to 4.42 per cent in November as compared to 1.9 per cent in the preceding month.

“No chance for a rate cut anytime soon. There could be a long pause from the Reserve Bank now. In the next quarter, the chances of inflation moving close to 5 per cent are high, and with global headwinds such as the reduction of quantitative easing, the Reserve Bank may not change its stance till June next year,” Reuters quoted Sunil Sinha, director of India Ratings, as saying.

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