Indian headline inflation accelerates to 40-month high in November on food prices

Indian headline inflation accelerated to a 40-month high in November. Even if the rise was driven by increased food prices, core inflation also accelerated for the first time in four months. On a year-on-year basis, consumer price index rose to 5.54 percent from October’s 4.62 percent. Sequentially, headline inflation decelerated to 0.95 percent in November from October’s 0.96 percent, due to unfavourable base effects.

Food prices rose 8.66 percent year-on-year in October. This marked the highest rise since July 2014. The rise was driven by vegetables and pulses. Within vegetables, the prices of onions rose by 144.6 percent, contributing 1.07 percent to headline inflation. Stripping onion, inflation prices was 4.47 percent in the month. In the meantime, fuel inflation declined for the fifth straight month.

Core inflation accelerated marginally for the first time in four months. However, this was driven by the miscellaneous category.

“Today’s inflation print comes close to the upper band of the RBI’s inflation target of 2-6 percent. We expect inflation to remain elevated for the next 2-3 months on 1) higher food prices, 2) unfavourable base effects and 3) increased telecom tariffs effective from December which will add to the upside in core inflation”, said ANZ.

Together, these factors dilute the case for rate cut in February given the RBI’s caution on rising inflation.

“However, we continue to expect the RBI to keep the door open for another cut as 1) inflation is expected to return closer to the mid-point of the target of 4 percent once onion prices cool and base effects normalise and 2) sluggish activity in growth keeps the output gap wide”, added ANZ.