In December, India’s retail inflation spiked to a five-month high, but the central bank is generally anticipated to keep key policy rates unchanged next month, despite concerns that the fast-spreading Omicron version of Covid could disrupt economic activity.
Consumer prices grew 5.59 percent in December from a year earlier, compared to 4.91 percent the previous month, according to Ministry of Statistics statistics released on Wednesday.
In December, price increases edged closer to the upper range of the Reserve Bank of India’s (RBI) 2 percent -6 percent target, but remained lower than the 5.80 percent average projection in a Reuters survey.
Rising Omicron instances, the unwinding of loose liquidity, and the risk of higher global crude oil costs, according to analysts, might drive up domestic prices in the coming months before moderating in the second half of the year.
According to Garima Kapoor, an analyst at Mumbai-based Elara Capital, supply-side restrictions caused by the spike in Omicron cases could keep retail inflation high in the coming months.
“We expect the MPC (Monetary Policy Committee) to be on hold in February policy,” she said, citing a recurrence of virus infections and economic disruptions as reasons.
During the pandemic, rising costs and job losses, along with a drop in income levels, have become a big issue for millions of Indians, especially as five major states prepare to hold elections next month.
Last month, the RBI held the benchmark repo rate at 4.0 percent for the ninth time, indicating that economic development remains a problem in the face of mounting Covid cases.
Food prices grew 4.05 percent year over year in December, compared to 1.87 percent the month before, accounting for roughly half of the consumer price index (CPI). Edible oil prices are nearly a quarter higher than they were a year ago.
Retail fuel costs increased 10.95 percent year over year in December, compared to 13.35 percent the previous month, according to the data.
According to three economists, annual core inflation, which excludes volatile food and energy prices, was between 6% and 6.1% in December, compared to 6.08 percent and 6.2 percent the previous month.
Core inflation figures are not released by the government.
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