Rating agency CRISIL has projected CPI Inflation at 6.4% for fiscal 2021. "After eight months above the Reserve Bank of India (RBI's) target band of 2-6%, Consumer Price Index (CPI) inflation was finally back in range, declining for the second straight month to a below-consensus 4.6% in December, from 6.9% in November. Average CPI inflation during April-December now measures 6.6%, down from the April-November average of 6.9%," the rating agency has said.
According to CRISIL, not only did CPI inflation fall on-month, aided by a massive decline in food prices, but the high base effect of last year also helped pull down headline inflation. But while core inflation softened marginally, fuel inflation went up in December.
"Core inflation, i.e., headline sans food and beverages, and fuel and light, softened only marginally at 5.6%, just 15 basis points (bps) lower than November, suggesting continuing stickiness in core inflation. This could be reflective of mild improvement in demand conditions on one hand and rising input prices on the other. Core inflation has a weight of 47.3%, and is a sizeable contributor to headline inflation.
Clothing and footwear inflation rose to 3.5% in December, from 3.4% in November. Another category that saw upward inflation price pressure was recreation and amusement that rose to 5.2% from 4.5%. Health inflation also rose to 6.0% from 5.6%. That said, inflation softened in idiosyncratic categories, i.e. personal care and effects (to 11.7% from 12.0%) and transport and communication (to 9.3% from 11.1%)," the rating agency noted.
According to CRISIL, with rising international commodity prices and an improvement in domestic industrial activity, fuel inflation reversed its declining trend to rise to 4.7% in December from 3.3% in November.
"Within that, fuel and light inflation rose to 3.0% from 1.6%, and petrol and diesel inflation to 11.4% from 10.0%. With inflation back in the target range of 2-6%, December has offered the RBI some much-needed respite. However, the RBI will still need to be watchful of the inflation trajectory going ahead with global commodity prices on the rise and the favourable base effect starting to taper off from January 2021," the rating agency has said.