India’s consumer inflation accelerated in November as food prices soared for a fifth consecutive month, government data showed on Monday.

Consumer prices came in at a 14-month high of 5.41 per cent in November, in line with VCCircle’s forecast from a survey of 17 economists. Retail inflation was 5 per cent in October.

While the figure is below the Reserve Bank of India’s target of 6 per cent for January 2016, the real cause of worry is the food price index inching up to 6.07 per cent on the back of a 46 per cent jump in the price of pulses as compared with last year. 

A second set of data released on Monday showed wholesale prices fell at a slower pace in November. Wholesale prices, which have been falling for over a year now, slid 1.99 per cent to a 10-month high after falling 3.81 per cent in October.

The wholesale price index (WPI) captures price movements in three broad categories—primary articles, fuel and power, and manufactured products.

Prices of manufactured products, which account for two-thirds of the index, fell 1.42 per cent in November compared with a 1.67 per cent drop in October.

Primary articles saw a rise in prices for the first time since April this year to 2.27 per cent, the highest level in 15 months, as pulses prices surged 58 per cent and onion prices soared 52 per cent.

Inflation, interest rate worries

While consumer inflation came below the RBI’s target, the central bank in its fifth bi-monthly policy statement released a fortnight ago had said that the numbers are expected to rise in December before they plateau.

The central bank, under the monetary policy guidance, has set a band of 2-6 per cent for inflation. It has also set an ambitious target of 5 per cent for next fiscal year.

Another cause of worry for the government will be rural inflation. A closer look at the numbers reveals that rural inflation has been rising more than urban inflation. With rural wages already depressed and the agrarian economy slumping, a rise in prices can spell more trouble for the farm economy.

Also, an increase in salaries of about 50 lakh government employees from January as per the recommendations of the seventh pay commission is also expected to push inflation higher.

Rising inflation will also make it more difficult to cut interest rates.

Interest rates are still said to be high and have had no impact on credit growth. Although a lot of this can be attributed to banks’ reluctance to pass on the benefit of the RBI’s rate cuts, the central bank will have to wait and watch as the government tries to reach its fiscal deficit target of 3.9 per cent in the wake of the pay hike for government employees.

“While falling crude oil prices is a comforting factor, the weak rupee would take away some benefit of it. The RBI is most likely to achieve its January 2016 inflation target, but achieving the medium-term target of 5 per cent would remain challenging,” said Devendra Kumar Pant, chief economist at ratings agency Ind-Ra. “Chances of any more monetary easing in this fiscal are almost zero.”

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