India's Inflation Shoots Up For The First Time In 4 Months; CPI At 5.5% In November, Higher-Than-Estimates

India's consumer price index (CPI) inflation shot up for the first time in four months to 5.5% in November 2023, which is also on the expected lines of RBI. However, the latest inflation print is higher than market estimates of 4.87%. Nevertheless, CPI is still well within RBI's upper tolerance limit of 6%.

In November 2023, CPI inflation rose to 5.55% as compared to 4.87% in October month. A year ago, in November, inflation was at 5.88%.

The current inflation rate is below RBI's upper tolerance limit of 6% for the third consecutive month now.

In the month under review, both rural and urban inflation rates saw a sharp uptick to 5.85% and 5.26% compared to the previous month of 5.12% and 4.62% respectively.

But the biggest spoilsport in November 2023 was a steep upside in food prices. The food inflation rate climbed to 8.70% in November 2023 versus 6.61% in October and 4.67% in the same month a year ago.

Vivek Rathi, National Director Research, Knight Frank India said, "An uptick in headline inflation in Nov'23 was propelled by food prices; primarily the vegetable prices which are seasonal in nature. Barring food prices, the inflation has moderated across the categories. The core inflation has notably softened to 4%, and a moderation has also been witnessed in fuel prices."

Furthermore, in November 2023, the inflation rate of Food and beverages came in at 8.02%, while inflation of Pan, tobacco and intoxicants stood at 3.81%. The clothing and footwear inflation rate was at 3.90%. Also, the housing inflation rate was at 3.55%. However, inflation in fuel and light declined by 0.77%.

The price data are collected from selected 1114 urban Markets and 1181 villages covering all States/UTs through personal visits by field staff of the Field Operations Division of NSO, MoSPI on a weekly roster. During November 2023, NSO collected prices from 99.9% of villages and 98.6% of urban markets while the market-wise prices reported therein were 90.0% for rural and 92.2% for urban.

The next date of CPI inflation for December 2023 is scheduled for January 12, 2024.

Going forward, Rathi said, "There would be an uptick in consumer headline inflation, however, there will be volatile food prices. Broadly, the inflation has moderated, thus would provide the RBI to keep the repo rate unchanged for a while now."

During the December 2023 monetary policy, RBI had already mentioned that it expects inflation to rise in November and December.

In its policy report, RBI said, "Uncertainties in food prices along with unfavourable base effects are likely to lead to a pick-up in headline inflation in November-December."

RBI further said kharif harvest arrivals and progress in rabi sowing together with El Niño weather conditions need to be monitored. Adequate buffer stocks for cereals and a sharp moderation in international food prices, along with pro-active supply-side interventions by the Government may keep these food price pressures under check. Crude oil prices may remain volatile.

Additionally, the central bank said, that early results from the firms polled in the Reserve Bank's enterprise surveys indicate softer growth in input costs and selling prices for the manufacturing firms in Q4 relative to the previous quarter, while price pressures persist for services and infrastructure firms.

Taking into account these factors, CPI inflation is projected at 5.4 per cent for 2023-24, with Q3 at 5.6 per cent; and Q4 at 5.2 per cent. Assuming a normal monsoon next year, CPI inflation for Q1:2024-25 is projected at 5.2 per cent; Q2 at 4.0 per cent; and Q3 at 4.7 per cent.