India's Dec retail inflation likely fell to within RBI target

BENGALURU: India's retail inflation likely fell sharply in December, landing within the Reserve Bank of India's target range, due to a significant drop in vegetable and food prices, a Reuters poll predicted.

The Jan. 5-7 poll of around 45 economists suggested retail inflation fell to 5.28% in December from 6.93% in November.

"Food inflation - particularly vegetable prices - are beginning to correct since supply lines are being restored in food aided by good monsoons," said Prithviraj Srinivas, chief economist at Axis Capital in Mumbai.

Inflation had been above the central bank's target range of 2%-6% for the eight months since April, a streak not seen since August 2014.

If it matches the poll forecast, December would be the lowest inflation print since November 2019, giving some relief to the RBI, which has been caught between boosting economic growth and curbing high inflation.

The RBI slashed interest rates by 115 basis points in March and May to stimulate growth in an economy battered by the coronavirus pandemic, but it has held the key repo rate at 4% since then, cautious of rising inflation.

"The recent rally in commodities lends to a fresh cost-push impact. Room for outright rate cuts is, thereby, limited, but the central bank will settle into a long pause, with a bias to anchor rates through strong dovish guidance," said Radhika Rao, economist at DBS Bank in Singapore.

Asia's third-largest economy contracted 7.5% in the quarter ending in September after declining 23.9% in the April-June quarter. It was forecast to contract 7.7% this fiscal year, the government said on Thursday.

Amid the global pandemic and an economic downturn, India has seen huge protests by farmers around the national capital region against new agricultural laws introduced by Prime Minister Narendra Modi's government.

The poll also predicted industrial output contracted 0.4% during November from a year earlier. In October, industrial production rose 3.6% after expanding marginally in September for the first time since February 2020.

Infrastructure output, which accounts for about 40% of total industrial production, contracted 2.6% in November.