Retail inflation spikes in November

Heaping pressure on policymakers to act, official data shows retail inflation in November has jumped to 11.2%, higher than the previous month’s 10.1% and above expectations of around 10%. The sharp spike in retail inflation also dashed any hopes of a cut in interest rates. In rural areas retail inflation was at 11.7%, while in urban areas it stood at 10.5%, highlighting the extent of pain for households, especially those with low incomes.
The Indian economy, Asia’s third-largest, faces a difficult situation where growth has slowed to a decade’s low but price pressures have remained stubborn. It has one of the highest inflation rates in the world, and the highest in Asia. Weak growth and high inflation also complicated the policy choice for the central bank.
Data released also showed industrial output slumped 1.8% in October compared with an annual growth of 8.4% in the same month last year. It was also lower than the 2% expansion posted in September, which had sparked hopes of a tentative recovery in the industrial sector.
The increase in retail inflation also heaps more misery on the ruling Congress, which was routed in four state elections. Rising prices, particularly of food, was identified as one of the factors, which had angered voters to give mandate against the party.
Reserve Bank of India (RBI) governor Raghuram Rajan said inflation was higher than the central bank’s comfort zone, while growth was weaker than estimated and vowed to calibrate policy carefully. “There are some trade-offs that we have to make,” he said.
RBI will review monetary policy next week and the latest round of data, particularly retail inflation numbers, may prompt the central bank to raise interest rates to tame inflationary pressures.
Inflation has emerged as a policy headache and has played havoc with household budgets. The centre says it is taking steps to moderate inflation but has blamed the state governments for failing to reform archaic farm market laws and act against hoarders.
Industrial output data showed the manufacturing sector contracted 2% in October compared with a 9.9% growth in October 2012, while mining fell 3.5% compared with a decline of 0.2% in the year-ago period. Electricity was the only sector which notched up growth, rising 1.3% in October compared with an expansion of 5.5% in the year-earlier period.
The consumer goods sector fell 5.1% compared to a growth of 13.8%, underscoring the fragile consumer sentiments. Consumer durables registered a bigger decline, contracting 12% in October compared with a 16.7% expansion in October 2012.
Economists said high retail inflation levels will prompt RBI to maintain a hawkish stance. They said the central bank will continue to be concerned by the overall inflationary pressures in the economy.
Indian Inc reiterated calls for a cut in interest rates to boost growth.