Rising Food Inflation in India Drives November Consumer Price Surge

Summary

    India experienced food inflation, which escalated to a rise of 8.70% in November from 6.61% in October. Core inflation, without accounting for food and energy costs, was roughly 4.05%-4.2%. A surge in food and beverage prices, not other factors, completely triggered this increase. The rising food costs validate RBI’s apprehensions about volatile food prices amplifying retail inflation. The Reserve Bank of India has kept policy rates steady in light of persistent inflation and strong growth.

    Year on year, cereals increased by 10.27% and vegetables by 17.7% in November, pulses were up by 20.23%, spices increased by 21.55% and fruit prices ascended by 10.95%. The November inflation rate remained within RBI’s acceptable range of 2-6% for a third straight month but was significantly above the 4% goal. RBI’s Governor has warned that these food inflation risks could potentially raise inflation in the subsequent months, even as core inflation continues to broadly stabilize.

Inflation Dynamics

As per economists, the Indian core inflation, that excludes food and energy prices, was projected to be in the range of 4.05%-4.2% in November. However, this was slightly lower than the 4.20%-4.28% in October. The Indian government has not made public any official core inflation statistics.

Impacts on Retail Inflation

RBI’s concerns about the impact of fluctuating food prices on the retail inflation were confirmed by this trend. For the fifth time in a row, the bank held the policy rates steady as inflation remained above target and the economy continued to show signs of strength.

Price Hikes

Notably, the increase in prices of cereals by 10.27%, vegetables by 17.76%, pulses by 20.23%, spices by 21.55% and fruit prices by 10.95% in November over the previous year heightened the inflationary pressures.

Future Outlook

RBI Governor Shaktikanta Das expressed risks to food inflation could heighten in November and December. However, he also indicated the core inflation, which factors out volatile food and fuel prices, is largely on predictable lines. According to economists like Thamashi De Silva of Capital Economics, the consistent trend of elevated food prices and substantial economic growth suggests that RBI will likely ease policy only in the second half of 2024.

This rise in food inflation, coupled with a robust economic growth could signal the start of an easing policy by RBI in H2 2024. The push-pull effect of this could potentially impact the forex market and trading assets linked with the Indian economy.

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