Headline inflation rises to 14-month high of 7.52%
The wholesale price inflation surged past analysts' expectations to a 14-month high of 7.52% in November, government data showed on Monday, after food prices rose at the fastest clip since June 2010.business Updated: Dec 16, 2013 13:24 IST
Costly vegetables, particularly potato and onion, pushed the November wholesale inflation to a 14-month high of 7.52%, making it difficult for the Reserve Bank to ease key policy rate.
Vegetable prices shot up by 95.25% in November as compared to 78.38% in the previous month, said the Wholesale Price Index (WPI) inflation data released today.
The overall inflation in the food segment comprising wheat, pulses, vegetables, milk, among others, was at 19.93%, up from 18.19% in October.
The rise in WPI comes after the retail or consumer price inflation jumped to 11.24%.
The inflation was at 7% in October and 7.05% in the earlier month (revised upwards from 6.46%).
Potato prices shot up by 26.71% in November as compared to a contraction in the previous month.
The onions too were costly, but the price rise was low as compared to October. Onion inflation was at 190.34% in November.
The data further revealed that protein rich items like egg, meat and fish were costlier by 15.19% while milk was dearer by 6.25% in November.
The inflation in fuel and power segment was at 11.08% in the month under review, up from 10.33% in October.
The price rise in the manufactured products rose to 2.64% from 2.50%.
The WPI inflation for November 2013 is the highest since September 2012 when it was 8.1%.
Amid slowing industrial production, the RBI is scheduled to review the monetary policy on December 18. It had hiked the key lending rate by 0.25% in each of its previous two policy reviews to contain inflation.
DARIUSZ KOWALCZYK, SENIOR ECONOMIST EX-JAPAN ASIA, CREDIT AGRICOLE CIB, HONG KONG
"The high print means RBI has to hike rates or lose credibility after it reacted negatively to the CPI data last week. However, the rise in inflation is purely food-price driven.
"Rate hikes will not correct food prices, the hawkish intention is a mistake, in our view, and will lead to slower growth, which will also pressure the INR. INR assets should fall across the board after the print. We remain highly negative on the INR and see 72 at the end of calendar '14."
A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI
"The surprise in the headline number is largely due to food inflation though manufacturing inflation is well behaved. So I don't think RBI should overreact to this data. Our view is RBI will raise rate by 25 basis points to 8 % at the policy review and pause. Now that the headline inflation has moved up they need to be seen doing something."
SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI
"I still think the RBI will increase the policy rate by 25 basis points for now. I am looking at a total 50 bps of hike for the financial year. I don't think the government will be completely averse to a rate hike as it has said that inflation remains its biggest worry."
UPASNA BHARDWAJ, ECONOMIST, ING VYSYA BANK, MUMBAI
"With a broad based rise in inflation across segments, we expect RBI to address the issue by hiking policy rate by 25 bps this policy. We had earlier expected them to pause. While food inflation has been the key driver, the forward guidance by RBI would remain biased towards anchoring inflationary expectations and monitoring the food price trajectory."
RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI
"The pressures are across the board. Rupee depreciation, diesel price increases are all pushing up inflation. If the RBI really wants to have effective monetary policy transmission, they should hike CRR (cash reserve ratio) by 50 bps as liquidity is sloshing around and that is adding to aggregate monetary demand.
"Earlier I was expecting only 25 bps hike in repo rate but now I am looking at either a 50 bps CRR or a 25 bps hike in repo and 25 bps in CRR. Going by the experience so far, only a repo rate hike will not pressurise banks to increase their lending and deposit rates.
"Inflation is a politically sensitive issue and since the first round of state polls have largely gone against the government they will focus on inflation and work in coordination with the government to try and bring inflation down."
(With inputs from PTI and Reuters)