India’s CPI inflation hits 5-month high of 5.59% in Dec 2021 due to unfavorable base effect

An unfavorable base effect pushed India’s consumer price index (CPI) or retail inflation to a five-month high of 5.59% in December 2021, from 4.91% the month previous. Last year, in December, the CPI was 4.59%. A sharp rise in food inflation and inflexible inflation in segments such as fuel and miscellaneous components – drove the CPI up slightly.

The Consumer Food Price Index (CFPI) was 4.05% in December 2021, more than double the rate of 1.87% in November 2021. In December 2020, food inflation was 3 .41%.

In December 2021, by segment, the inflation rate was 4.47% in food and beverages, 3.22% in Pan, tobacco and intoxicants. Meanwhile, clothing and footwear inflation was 8.30% and housing inflation was 3.61%. Fuel and lighting inflation was 10.95% and miscellaneous inflation was 6.65%.

“The rise in retail price inflation was driven by a sharp rise in food inflation and rigid inflation in fuel and miscellaneous components. Sequentially, retail price inflation eased from 0 .4% over the month An unfavorable base is expected to push inflation numbers higher in the coming months keeping it close to the upper range of the RBI’s flexible inflation target range of 2% to 6 Retail inflation for December 21 is below our forecast of 6.1%,” CARE Ratings said in its latest report.

The latest CPI inflation has approached the upper limit of its target. The RBI’s monetary policy outcome is based on the objective of achieving the medium-term consumer price index (CPI) inflation target of 4% within a range of +/- 2 % while supporting growth.

Moreover, in December 2021, underlying inflation was moderate at 6%, however, on a monthly basis, a slight increase of 0.3% was observed.

“So far in FY22, core inflation has held steady at elevated levels, reflecting lingering price pressures in the economy. Inflationary pressures have accelerated in urban and rural areas,” the CARE report said.

RBI estimates CPI at 5.1% in Q3 and 5.7% in Q4 with broadly balanced risks. CPI inflation for Q1:2022-23 is projected at 5% and for Q2 at 5%.

Looking ahead, CARE’s note said: “An unfavorable base, telecom rate hikes, a slight increase in final commodity prices by manufacturers to offset soaring input costs, high inflation in services and fuel component expected to result in higher retail inflation Additionally, the rapid increase in Covid-19 cases driven by the new Omicron variant and the resurgence of restrictions in the states could again result in supply chain disruptions, which would impact prices across all segments.

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