Inflation accelerates again in November despite fiscal brakes on fuel
Fuel tax cuts helped quench transport and communications inflation by 0.6% on a monthly basis
Retail sales inflation in India hardened for the second consecutive month in November, reaching 4.91% from 4.48% recorded in October, as urban areas of the country saw prices rise more sharply at a faster pace. of 5.54% and the prices of vegetables jump by 7.45% compared to the previous one. month.
Inflation in transport and communications slowed only slightly to 10.02% in November, from 10.9% the previous month, despite cuts in gasoline and diesel taxes announced by the government. Center during the first week of the month, followed by most states reducing their own fuel taxes in subsequent weeks.
This suggests that upward price pressures persist, due to rising input and raw material costs, as evidenced by wholesale price inflation hitting a five-month high of 12.54% in October. . Wholesale price trends for November are expected to be released on Wednesday.
“With pressure on input prices forcing producers to raise prices in many sectors, retail price inflation in November accelerated slightly faster than expected, ignoring the favorable base effect and reduction in fuel taxes, âsaid ICRA chief economist Aditi Nayar.
Fuel tax cuts helped quell transport and communications inflation by 0.6% on a monthly basis, but all other sundries categories showed a large sequential increase, ranging from 0.2 % for education to a strong 0.9% for individuals. care and effects, highlighting increasing price pressures in the economy, she said.
November inflation is within the central bank’s target range of 2% to 6%, but in the upper end of the tolerance band, noted Vivek Rathi, research director of Knight Frank India. Fuel and transportation costs remained the main components that pushed the level higher in this reading, as these categories put pressure on the costs of various input items, he pointed out.
Inflation in food prices paid by consumers more than doubled from 0.85% in October to 1.87% in November, with oil and fats inflation slowing only slightly from 33.5% in November. October at 29.7%. However, with the exception of tomatoes and vegetables, the prices of many food items have corrected downward.
“The moderation of CPI inflation for fuel and light, cookware, tobacco and intoxicants and various items has been overtaken by rising inflation for food and beverages, housing, clothing and shoes, âthe CIFAR economist said.
Suman Chowdhury, director of analysis at Acuity Ratings & Research, said the rise in food inflation was due to volatility in vegetable inflation which remains firm at 7.4% mo, despite the favorable winter season. . This, he said, may have happened due to erratic rainfall in parts of the country.
âVegetable shortages raised prices in November, but vegetable prices are expected to come down in the coming weeks with the new crop arriving on the market from January 2022,â said Pradeep Multani, president of the PHD Chamber of Commerce and Industry.
Relative to urban dwellers, rural India faced a more moderate increase, from 4.07% in October to 4.29% in November, according to official data from the National Statistics Office.
Aside from fuel prices, increases in telecommunications tariffs and volatile vegetable prices will also play a key role in determining the path of inflation in the coming months, but there is a risk that it will continue. moves closer to the 6% outer limit for the central bank, Madhavi Arora warned. , Chief Economist, Emkay Global Financial Services.
Even though economists fear that the base effects of last year’s inflationary trends will become unfavorable in the months to come. But most agree that the Reserve Bank of India (RBI) is unlikely to abandon its accommodative monetary policy in favor of growth to focus on higher inflation, as the recovery in the economic activity in recent months is still not convincing.
During the RBI’s last monetary policy review last week, Central Bank Governor Shaktikanta Das expressed optimism that the reduction in excise duties on gasoline and diesel, which he claimed since early 2021, would reduce inflation in a sustainable manner. He also noted that the fall in crude oil prices in November would ease domestic cost pressures.