According to the latest data released by the ministry of statistics, the retail inflation during the month of December was at 5.72 per cent. The latest figures, released on Thursday, showed a marginal decline and further moderation in retail inflation as compared with the previous month.
The retail inflation was 5.88 per cent in November from 6.77 per cent in October. The retail inflation in India had remained above 6 per cent till October for over three quarters, which was beyond RBI’s comfort zone.
“CPI inflation fell to a 12-month low of 5.72 per cent in Dec’22, along expected lines, primarily due to huge decline in vegetable prices with sowing practices by farmers undergoing a tectonic shift, aligning with better weather and technology forecasting,” SBI Research report authored by Group Chief Economic Adviser of State Bank of India Soumya Kanti Ghosh said.
“Against the evolving landscape, we see little incentive for further (repo) rate hike, with synchronised past actions on rate front yet to show the full impact,” it added.
Rajani Sinha, Chief Economist at CareEdge said that the concern is that core CPI inflation remains sticky above 6 per cent, with evidence of high inflation in services sector. “From the policy perspective, we believe that RBI’s move at the February monetary policy meeting will be a close call with core inflation remaining sticky. Retail inflation has eased more than expected in December, bringing the headline print below the RBI’s upper tolerance for the second straight month. The softening is largely attributed to the decline in prices of vegetables, that helped offset the rise in costs of other products of the food basket such as cereals, milk and meat,” she said.
In its fight against rising inflation, RBI had already hiked the key policy rate by 225 basis points since May 2022 to 6.25 per cent to cool off domestic retail inflation that stayed above its upper tolerance limit for nearly three quarters.
Raising interest rates typically cools demand in the economy, thereby putting a brake on inflation.
The latest hike was on December 7 last year, when the Monetary Policy Committee (MPC) of the RBI increased the policy repo rate by 35 basis points, besides deciding to remain focused on the “withdrawal of accommodation” of monetary policy to ensure that inflation remains within the target going forward, while supporting economic growth.
“Retail inflation at 5.72 per cent in December confirms the downtrend which started in November. This will enable the RBI to go slow on rate hikes,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
The next three-day RBI monetary policy meeting is scheduled for February 6-8.
