India's CPI inflation comes at a 5-month high of 5.59% in December 2021 due to the unfavourable base effect

13 Jan 2022 , 09:01 AM

Unfavourable base effect pushed India’s consumer price index (CPI) or retail inflation to a five-month high at 5.59% in December 2021 compared to 4.91% in the previous month. Last year, in December, CPI stood at 4.59%. A sharp rise in food inflation and unyielding inflation in the segments like fuel and miscellaneous components – led to an uptick in the CPI.

The consumer food price index (CFPI) was at 4.05% in December 2021, more than doubling the rate of 1.87% in November 2021. In December 2020, food inflation was at 3.41%.

In December 2021, segment-wise, the inflation rate was at 4.47% in food and beverages, 3.22% in Pan, tobacco and intoxicants. Meanwhile, Clothing and footwear inflation were at 8.30% and housing inflation at 3.61%. The inflation rate of fuel and light stood at 10.95% and Miscellaneous inflation was at 6.65%.

“The uptick in retail inflation has been driven by a sharp rise in food inflation and rigid inflation in the fuel and miscellaneous components. Sequentially, retail inflation has softened by 0.4% during the month. An adverse base is expected to drive up the inflation numbers in the coming months keeping it close to the upper band of the RBI’s flexible inflation target range of 2% to 6%. Retail inflation print for December’21 is lower than our forecast of 6.1%,” CARE Ratings said in its latest report.

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

Further, in December 2021, the core inflation stood muted at 6%, however, on a month-on-month basis, a slight rise by 0.3% was witnessed.

“So far in FY22, core inflation has been sticky at elevated levels reflective of persistent price pressures in the economy. Inflationary pressures have picked up in urban as well as rural segments,” CARE’s report said.

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

Going forward, CARE’s note said, “An adverse base, telecom tariff hikes, uptick in final prices of commodities by manufacturers to offset the surge in input costs, elevated inflation in the services and fuel component are expected to translate into a higher retail inflation print over the coming months. Moreover, the rapid surge in Covid-19 cases driven by the new Omicron variant and resurgence of restrictions across states could once again lead to supply chain disruptions thereby impacting prices across segments.”