India’s November retail inflation below 6% for the first time this year

By Aftab Ahmed and Nikunj Ohri

NEW DELHI (Reuters) -India’s annual retail inflation eased below its central bank’s upper tolerance level for the first time this year in November amid a softer rise in food prices, surprising economists, with some expecting a pause in rate hikes.

Annual retail inflation rose 5.88% in November from 6.77% in the previous month, government data showed on Monday. Analysts in a Reuters poll had predicted a November reading of 6.40%.

Food price inflation, which accounts for nearly 40% of the consumer price index (CPI) basket, eased to 4.67% in November from 7.01% in October.

That was mainly due to a decline in the prices of fruit and vegetables. However, prices of cereals, pulses and eggs continued to rise.

“Favourable base effect and seasonal correction in food prices drove the November CPI inflation to a 10-month low,” Elara Capital’s Garima Kapoor said.

A correction in commodity prices and a seasonal softening in food prices led by vegetables are likely to be key tailwinds for the inflation trajectory, she added.

Global Brent crude prices have fallen nearly 30% since August.

Retail inflation had been above the upper end of the Reserve Bank of India’s (RBI) 2%-6% tolerance band since January, mainly due to supply shocks caused by the Ukraine war, which started in February. It hit an eight-year high of 7.8% in April.

To rein in inflation, the RBI has raised interest rates by 225 basis points, including a 35 basis point hike last week.

The RBI recently wrote a letter to the government explaining the reasons for failing to contain inflation within the set band for three successive quarters. The Indian government said it would not publish the letter.

Some economists expect inflation to hover around the 6% mark in the coming months and forecast the central bank will pause rate hikes at the next meeting in February.

“The current trend suggests that the RBI would be in the pause mode during the next monetary policy decision,” said Sujan Hajra, economist at Anand Rathi, a financial services firm.

Also on Monday, India posted a 4% annual contraction in industrial output for October, its worst performance in 26 months, after revised growth of 3.5% in September, due to rising interest rates and slowing global demand.


Economists say core inflation could remain sticky in the coming months as price pressure will continue in health, education, clothing and personal care, among other sectors.

Excluding the volatile food and energy components, core inflation was between 6% and 6.26% in November, according to three economists’ estimates, versus 5.9% to 6.3% in October.

“Given the pending pass-through of higher input costs by producers and sustainability of robust demand for services, core inflation is likely to remain elevated,” said Aditi Nayar, an economist at ICRA.

Last week, RBI Governor Shaktikanta Das said it would continue its fight against inflation despite the worst being “behind us”, warning against complacency.

(Additional reporting by Nishit Navin; Graphic by Riddhima Talwani; Editing by Sanjeev Miglani and Mark Potter)