Inflation slows to 4.59% as food prices ease

Inflation slows to 4.59% as food prices ease

Food inflation was 3.41 percent in December compared to 9.5 percent in November.

Food prices, which make up almost half of the inflation basket, increased 3.41 per cent in December from a year earlier, against 9.43 per cent in November.

Meanwhile, India's Index of Industrial Production contracted by 1.9% in November, another set of data released by the government showed. Mining output contracted 7.3% in the month, while manufacturing declined 1.7%, indicating an unwinding of inventory build-ups with the quenching of pent-up and festive demand.

Retail inflation, calculated on the basis of Consumer Price Index (CPI), declined to 4.59 per cent in December a year ago as vegetable prices plunged sharply. Industrial output grew 4.19% in October, higher than the 3.6% quick estimate. "In view of growth concerns, we expect the RBI to continue its accommodative policy stance and maintain status quo on policy rate in the forthcoming monetary policy review while keeping a close eye on the upcoming Union budget to ascertain the government's fiscal stance", he added.

Rahul Gupta, head of research currency, Emkay Global Services, says "India's December CPI has come as a surprise, lower than the market expectations".

India’s retail inflation drops to 4.59 % in December

Buoyed by higher gasoline prices, the broader CPI advanced 0.4 per cent from a month earlier and 1.4 per cent from December 2019. "With increase in crude oil prices and fears over bird flu, inflation may remain sticky for sometime".

The IIP data comes as a dampener to hopes of an economic revival, as factory output in the country had grown 3.6% in October, the highest since a countrywide lockdown was imposed due to the coronavirus lockdown in March previous year.

Retail inflation tumbled to a 14 month low of 4.59 per cent amid a dramatic fall in vegetable prices and contraction in overall food prices.

"She said the contraction in the IIP in November 2020 was broad-based, with only electricity and infrastructure displaying a growth".

Analysts in a Reuters poll had predicted an annual inflation at 5.28% for the month. An accompanying moderation in the inflation rates for meat and fish, eggs and pulses, helped the consumer food price index record its slowest pace of increase in 16 months at 3.4%.

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