Inflation shock for Modi..Price rise dashes hope of interest rate cut


New Delhi, Jan 12: Continuing rise in food and fuel prices pushed India's annual retail inflation rate over the five per cent-mark in December, official data showed on Friday, putting paid to hopes of an interest rate cut by the RBI in the near future.

According to the data furnished by the Ministry of Statistics and Programme Implementation, December's consumer price index (CPI) inflation rose to 5.21 per cent from 4.88 per cent in November.

On a year-on-year (YoY) basis, the CPI inflation last month was higher than the 3.41 per cent recorded in December 2016.

The Consumer food price index (CFPI) in December stood at 4.96 per cent compared to the 4.42 per cent of November 2017.

The annual CPI in rural areas in December ruled higher at 5.27 per cent, while in urban India it rose by 5.09 per cent.

Retail inflation on a YoY basis edged higher due to a rise in the prices of food items like vegetables, milk-based products, eggs, meat and fish.

The data showed that vegetables in December became costly by a whopping 29.13 per cent, while prices of milk-based products rose by 4.37 per cent.

Other notable categories such as cereals became dearer by 2.57 per cent and meat and fish recorded a rise of 4.22 per cent.

The sub-category of food and beverages during the month under consideration recorded a rise of 4.85 per cent over the same period last year.

Among non-food categories, the "fuel and light" segment's inflation rate accelerated to 7.9 per cent in October.

Earlier this month, Finance Minister had told Parliament that the inflation had increased owing to a seasonal rise in vegetable prices and the higher house rent allowances disbursed to government employees under the 7th Pay Commission recommendations. 

Inflationary risks forced the Reserve Bank of India (RBI) to hold its key lending rate unchanged for the third time in a succession at 6 per cent in its penultimate bi-monthly monetary policy review of the fiscal last month.

Announcing the decision of the monetary policy committee (MPC), the RBI said inflation is expected to range around 4.3-4.7 per cent in the second half of the fiscal, including the impact of increase in house rent allowance.

The central bank said "two of the key factors determining the cost of living conditions and inflation expectations -- food and fuel inflation -- edged up in November".

"The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth," an RBI statement said. 


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