India's retail inflation eases in December, within RBI target

NEW DELHI: A fall in vegetable prices helped India's retail inflation to ease in December to within the central bank's 2% to 6% target range, although it's unlikely to cut the policy repo rate soon, economists said.

December's annual retail inflation was 4.59%, down from 6.93% in November to the lowest since September 2019 and below the 5.28% forecast in a Reuters poll of economists, data released by Ministry of Statistics showed on Tuesday.

Economists said growing consumer demand and rising input costs for manufacturers are likely to keep headline inflation above 4%, providing little wriggle room to the Reserve Bank of India in 2021.

The data came as a surprise, said Rahul Gupta, head of currency research at Emkay Global Financial Services, but with an increase in crude oil prices and fears over bird flu, inflation may remain sticky for some time.

"The central bank may continue its pause at the February's policy meeting and look out for more incoming data," Gupta said. The monetary policy committee of the Reserve Bank of India (RBI)will hold its next policy review meeting from Feb 3 to 5.

Prime Minister Narendra Modi's administration is expected to step up spending on infrastructure and rural welfare programmes in the annual budget on Feb. 1, to bolster economy, projected to contract 7.7% in the current financial year, ending in March.

Retail food prices, which make up nearly half of India's inflation basket, increased 3.41% in December from a year earlier, against 9.43% in November.

Vegetable prices fell 10.41% from a year ago. Cereals rose just 0.98%, the data showed.

Core inflation, excluding food and fuel costs, was estimated in the range of 5.65%-5.70% for the month by three economists following the data release. India does not give official core inflation data.

RBI has slashed its main repo rate by 115 basis points since March 2020 to cushion the shock from the coronavirus crisis, but left rates unchanged last month.

"The focus is now being oriented towards supporting the recovery and preserving the solvency of businesses and households," RBI said in a report released on Monday.