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End in sight for the price pinch?

India's retail inflation has hit a high of 11.24% in November, the highest in nine months. Vegetable prices rose by 61.6%. But the good news is at least vegetable inflation, is showing signs of bottoming out.

business Updated: Dec 13, 2013 01:43 IST
HT Correspondent

First, the bad news.

India's retail inflation has hit a high of 11.24% in November, the highest in nine months. Vegetable prices rose by 61.6% on the back of onion, a key ingredient in most Indian dishes.

Industrial output declined by 1.8% in October, mirroring weak corporate investment activity and poor consumer purchases.

The Reserve Bank of India (RBI) has raised lending rates several times this year to tame inflation by cooling demand. This has raised home loan EMIs. RBI governor Raghuram Rajan indicated more rate hikes could be coming.

"Clearly growth is weaker than we would like, inflation is higher than we would like. In a situation where you have high inflation and low growth you have to calibrate policy carefully. There are some trade-offs that we have to make," Rajan told reporters after the RBI's board meeting in Kolkata.

Now, the silver lining.

Inflation, at least vegetable inflation, is showing signs of bottoming out.

Stubbornly high onion prices, emblematic of India's inflation woes, had tripled in the last one year.

Over the last two weeks, however, it has been on a downtrend—from about Rs 80 a kg to about Rs 50 currently—thanks to the arrival of fresh supplies in the market.

C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, said the rise in food prices was due to an "extraordinary" increase in vegetable prices and onion prices have fallen by half since their peak.

"We can expect by Decem­ber for food prices to come down, and that will moderate the CPI (consumer price index) inflation," he said.

On the industrial output front, "a normal monsoon and consequent pickup in rural incomes could push up consumption growth," credit rating agency and research firm Crisil said in a research note.