Retail Inflation Surges to 3-Month High of 5.55% in November 2023: Food Costs Propel Prices

In a recent release of official data, it has been reported that retail inflation, measured by the consumer price index, surged to a three-month high of 5.55% in November 2023, compared to 4.87% in October. While this rise is slightly below expectations, the increase is primarily attributed to the escalating costs of food items.

The data revealed that food prices played a pivotal role in propelling retail prices to their highest point in three months. Factors such as continued pressure from cereals and perishables, coupled with supply-side volatility due to extreme weather conditions, contributed to this upward trend. Analysts speculate that persistent high food prices may pose challenges for the Reserve Bank of India (RBI) in maintaining inflation within its target band of 4(+/-2)%.

Core inflation, excluding volatile items like food, fuel, and energy costs, continued to decline, registering at 4.1%. This is in contrast to November 2022 when retail prices experienced a sharper increase at 5.88%.

Breaking down the food price index, a sub-component of inflation, revealed a substantial year-on-year rise of 8.70% in November, compared to 6.61% in October. Food articles, constituting nearly half of the consumer inflation basket, contributed significantly to the overall inflationary pressure.

Rural India experienced a higher inflation rate at 5.85% in November, surpassing the 5.26% recorded in urban centers, according to the data.

Key segments contributing to the inflationary surge include cereal inflation at 10.27%, vegetables rising by 17.70%, and pulses increasing by 20.23%. Meanwhile, fuel and light inflation decreased by 0.77%, housing prices moderately rose by 3.55%, and footwear became more expensive by 3.29%.

Despite expectations among analysts that retail prices in India would further increase in November, the consumer price index rose to 5.55%, slightly lower than the anticipated 5.8%.

"Core inflation is currently reaching the RBI’s target. The RBI’s caution (in not bringing down key interest rates) is warranted given the substantially larger weight of food products in India’s retail basket."

The RBI, maintaining its key policy rate over the past four meetings, anticipates inflation to average 7% in 2023-24, surpassing the 6.7% recorded in the previous year.

While India's economy demonstrates a pattern of strong growth, with double-digit growth in industrial output and lower non-food inflation, it faces ongoing risks from volatile food items due to adverse weather conditions.

Governor Shaktikanta Das emphasized the central bank's vigilance against potential sources of inflation, especially in the face of recurring and overlapping food-price shocks. As food costs impact poorer households more significantly, the RBI remains watchful and actively disinflationary to align inflation with the target while supporting growth in the broader economy.