India’s retail inflation surges to five-year high

Bloomberg

India’s consumer price inflation hit a more than five-year high, boosting the case for the central bank to keep interest rates on hold for longer and possibly putting at risk its
accommodative stance.
Data on Monday showed inflation breached the upper end of the Reserve Bank of India’s (RBI) 2%-6% target band as it accelerated to 7.35% in December from a year earlier — the steepest gain since July 2014. That’s faster than the 6.7% median estimate in a Bloomberg survey of 37 economists and compares with a 5.5% gain in the previous month.
Any immediate respite seems remote, as volatile crude oil prices amid US-Iran tensions add to price pressures. In India, the world’s third-biggest oil importer, costs of everything from food to medicines and mobile-phone services have already been climbing.
Core inflation, which strips out volatile food and fuel prices, inched up to 3.75% last month from 3.5% in November.
The December price print is “unpalatably high,” said Aditi Nayar, an economist at ICRA Ltd. in Gurugram, near New Delhi. Concerns surrounding a higher core inflation trajectory are likely to be adequate for policy makers to remain on hold in February, and consider a possible change in stance from accommodative to neutral, she said.
The RBI cited “much higher than expected” inflation when it unexpectedly kept interest rates unchanged in December following five cuts totaling 135 basis points earlier in the year.
Price stability is the central bank’s prime objective as persistently high inflation disproportionately affects the poor, Governor Shaktikanta Das said last week. That’s a more cautious tone than his comments in December, when he said the central bank will maintain an easing bias for “as long as it is necessary” to revive economic growth.