Alarming increase in retail inflation in Dec’19

Retail inflation (based on consumer price index) in the country has surged to 7.35% in December 2019, primarily due to increase in food prices and telecom tariffs, according to official data released earlier today. It stood at 5.54% in Nov’19 and 2.11% in Dec’18. This is the highest level observed since July 2014 when the CPI based inflation had surged to 7.39%. Although “core inflation” – a metric that excludes volatile components like food items – stood at 3.7%, marginally higher than same period last year. CPI based inflation thus has now breached the 2-6% limit set by the RBI.

Food inflation as a whole increased to 14.12% in Dec’19 from 10.01% in the previous month. Food inflation had stood at (-)2.65% in Dec’18. Increase in vegetable prices was the main factor behind the sharp increase in food inflation – refer image below.

Increase in inflation by major groups

One of the key drivers for the sharp increase in food inflation was the unnatural surge in onion prices in December – caused to a large extent due to unseasonal rains.

The news further illustrates the challenge around the economy with the GDP growth rate for FY20 projected at an 11 year low in the advance official estimates released last week.

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