Inflation hits a 14-month high

Inflation accelerated to a 14-month high in November as prices of vegetables and food items soared, raising the prospect of a hike in interest rates when the RBI reviews the monetary policy on Wednesday.
The wholesale price index rose 7.5% in November, above the previous month’s 7% and 7.2% last November. This was also above market expectations of a 7% increase. Food prices continued to exert pressure, rising an annual 20%.
While vegetables shot up 95.3% year-on-year, onion prices rose an annual 190.3% during the month. Although prices of vegetables have moderated in recent weeks due to fresh arrivals, high food prices continue to be a policy headache. The increase in food prices in November was the fastest since June 2010. In the past nine years, food inflation has averaged 10% compared to below 5% in the preceding decade.
The data is likely to put more pressure on the government to tame stubborn price pressures, which have been identified as a key reason for the Congress’s rout in the recent state elections. Household budgets have been upset, while the increase in interest rates has led to larger outgo on housing and car loans.
The increase in wholesale inflation rate comes against the backdrop of a surge in retail prices, which rose over 11% in November, largely on the back of soaring vegetable and food prices. The government also revised upwards the wholesale inflation data for September to 7.1% from the previously reported 6.5%, highlighting the entrenched price pressures on the economy.
The RBI, which has said inflation remains at an uncomfortable level, is expected to raise interest rates again.

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