Instant View: India's November retail inflation climbs to 4.19% y/y

BENGALURU (Reuters) - India's retail inflation accelerated in November, led by a rise in food prices, but remained within the medium-term target of the central bank, strengthening views that the bank could keep interest rates on hold at its next meeting in February.

Consumer prices rose 4.91% in November from the same month last year, speeding up from October's 4.48% but lower than the consensus Reuters poll forecast of 5.10%, Ministry of Statistics data showed on Monday.

COMMENTARY

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI

"As expected, retail inflation inched higher but remains below 5%. Core inflation also remained largely unchanged at 6%-plus. Upward move of retail and high core inflation would be matter of concern for the RBI.

"We expect the rate normalization by the RBI to start soon. Yet, given that average industrial production remains below the pre-pandemic average, the pace of rate hike is expected to be gradual."

PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI

"CPI inflation came in slightly below our expectation. The uptick in headline CPI was driven by sequential acceleration in cereals, fruits, vegetables and sugar which were only partially offset by weaker edible oil and fuels.

"Low base from last year was also a factor in optically boosting headline CPI. We find that sequential seasonally adjusted momentum in CPI is near 6% on annualized basis. Some of this pace will ease as food supply normalizes.

"However, we need to see how general inflation behaves as growth continues to recover led by High income households and localization of demand. RBI will likely signal modest tightening next year to keep expectations in check."

SAKSHI GUPTA, SENIOR ECONOMIST, HDFC BANK, GURUGRAM

"CPI inflation at 4.9% came in lower than expected for November. While this provides relief for the RBI in the near term to keep its support for growth alive (especially in light of the uncertainty surrounding omicron), we expect the inflation dynamics to turn a little less favourable from December onwards as the base effect wanes off.

"Input cost pressures along with continued pickup in demand are likely to keep core inflation under pressure beginning 2022. We continue to expect the RBI to deliver a reverse repo rate hike in its Feb meeting."

SHASHANK MENDIRATTA, ECONOMIST, IBM, NEW DELHI

"The downside surprise to inflation has been due to a less-than-expected rise in vegetable prices. While the central bank will draw comfort from the headline print, the relief is likely to be temporary.

"Going ahead, the favorable base effects will dissipate, pushing inflation higher. More importantly, core inflation remains sticky which will remain a concern for the RBI. Upside core inflation risks continue to remain amid recovery in demand and cost push pressures.

"Despite today's print, the central bank will continue the path of liquidity normalization and eventually hike policy repo rate in April next year when the growth recovery is likely to be more broad-based."

RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI

"Today's print combined with relatively weak industrial production numbers vindicate the MPC stance to stay accommodative for a longer time. MPC will wait to see strong evidence of demand-side pressures in the inflation series before undertaking any meaningful tightening."

RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE

"Inflation ticked up at the headline level in November, while softening on the sequential basis, staying within the RBI's target range for a fifth consecutive month. Base effects were favourable alongside softer sequential rise in the heavyweight food inflation.

"While the evolving FY average is close to the central bank's projection, December 2021 and Jan-March 2022 trends are likely to test above official forecasts as pipeline pressures filter through, for instance price adjustments by producers as margin pressures surface, and telecom price hikes (likely to filter through in December), just as base effects turn adverse.

"For now, policymakers are opting to tolerate higher inflation to give growth a chance, however we expect the balance to shift next year."

KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU

"Expectedly India's November 21 CPI moved up to 4.9% Y/Y from 4.3%, led by both food and core prices. Food prices moved up from 0.8% to 1.9%. CPI ex-food remained stable at 7.0%.

"However, despite a dip in petrol and diesel prices, transport and communication component printed a 10%-plus growth. Also, sharply increased mobility following the end of the second wave has led to perking up of recreation and amusement costs by 7.6%, the second such print in nearly 10 years.

"Our calculated core inflation moved up to 5.5% Y/Y from 5.4%, closer to the upper tolerance limit of RBI's comfort zone. Clearly, the central bank's inflation headache continues. This would keep our expectation policy normalization path unchanged - an increase in Reverse Repo rate by 15bp in February followed by a rate hike of 25bp in April."

ADITI NAYAR, CHIEF ECONOMIST, ICRA, GURUGRAM

"With input price pressures forcing producers to raise prices in many sectors, the November 2021 CPI inflation accelerated slightly faster than we had expected, shrugging off the favourable base effect and the cut in fuel taxes.

"The recent correction in prices of many food items other than tomatoes, has provided relief for the inflation trajectory, especially given the unfavourable base effects that lie ahead.

"In our assessment, as long as the CPI inflation remains within the target of 2%-6%, the monetary policy committee (MPC) and RBI will prefer to prioritize growth, and maintain policy support to impart durability and sustainability to the recovery. As of now, there isn't enough evidence on the durability of the growth recovery to confirm that the stance will be changed to neutral in the February 2022 policy review."

SREEJITH BALASUBRAMANIAN - ECONOMIST, IDFC AMC, MUMBAI

"The November headline CPI print of 4.9% was below our expectation, driven mainly by the sequential contraction in the fuel and light category. While momentum in food prices continued to pick up but at a lower rate, core inflation stayed high at 6.1% y/y.

"Going ahead, the correction in vegetable prices will be important in terms of downward pressure but factors like telecom tariff hikes, GST (goods and services tax) rate hikes on textile and apparel, oil price rebound, services inflation, any pass-through of prices to consumers by producers, etc. warrant close monitoring alongside core inflation which continues to remain high and sticky."

MADHAVI ARORA, CHIEF ECONOMIST, EMKAY GLOBAL FINANCIAL SERVICES, MUMBAI

"The inflation print for November has come out a tad lower than our expectations, but does little to change the narrative ahead. The downside surprise has largely come from food inflation while core inflation looks to be sticky and elevated.

"Going ahead, we remain watchful of various inflation push and pull such as excise cut-led fall in fuel price hike, telecom tariff hike, volatility in vegetables prices, correction in global commodity prices and early signs of easing supply chains globally (and possible reversal of the same amid Omicron strain).

"We see inflation averaging 5.4-5.5%+, which is higher than the Reserve Bank of India estimates. In our view, the inflation-led dissenting noises in the MPC may continue, but on net, they may still choose to look through the spike in inflation in the near term, with the monetary reaction function currently hinging more on growth revival becoming sustainable. The focus of the RBI may remain on liquidity normalization measures amid a system liquidity deluge."

(This story corrects number in headline to 4.91% from 4.19%)

(Reporting by Soumyajit Saha, Chris Thomas, Rama Venkat, Vishwadha Chander, Chandini Monnappa in Bengaluru; Editing by Vinay Dwivedi)