Retail inflation fell sharply to 4.59 per cent in December, mainly due to declining food prices, government data showed on Tuesday.
Retail inflation based on the Consumer Price Index (CPI) was 6.93 per cent in November.
Food inflation declined to 3.41 per cent in December in 2020, compared with 9.5 per cent in the previous month, according to the data released by the Ministry of Statistics and Programme Implementation.
The Reserve Bank of India (RBI) factors in retail inflation while arriving at its monetary policy.
Rahul Gupta, head of research currency, Emkay Global Services, says “India’s December CPI has come as a surprise, lower than the market expectations. The significant drop in vegetables and food prices has led to a sharp fall in the inflation data.”
“It’s after April 2020 that inflation has come in between RBI’s target range of 2 per cent – 6 per cent. However, with an increase in crude oil prices and fears over bird flu, inflation may remain sticky for sometime. This may give the RBI some room to cut interest rates but in our view, the central bank may continue its pause at February’s policy and look out for more incoming data.”
Anagha Deodhar, chief economics, ICICI Securities, said, “This inflation print is sharply lower than our expectation. Food prices drove the softening in inflation.”
“Although a high base is partially responsible for the decline, cheaper cereal and vegetable prices were the primary drivers of decline in food inflation. Core inflation also fell moderately to 5.66 per cent from 5.84 per cent in the preceding month.”
“This should provide a big relief to the MPC as persistently high inflation has been a cause of concern.”
Prithviraj Srinivas, chief economist of Axis Capital, agreed.
“Headline inflation coming close to the RBI’s target band is a relief and should provide the central bank space to chart a slow exit for the crisis-level monetary policy. However, core CPI near 5 per cent and rising input costs due to commodity price inflation is a concern that needs to be monitored.”