Inflation cooldown comes as a surprise; industrial output disappoints

India’s retail inflation drops to 4.59 % in December

This happened because of a sharp fall in food inflation from 9.5 per cent in November to 3.4 per cent in December, the lowest since August 2019. In the 12 months through December the CPI rose 1.4 per cent after increasing 1.2 per cent in November. Mining output contracted 7.4 per cent in November as against 1.9 per cent growth the previous year. "Today's CPI print largely reflects normalization of the inflation picture as the bulk of the inflation spike earlier during H2 2020 came in from surging food inflation, even though prices of industrial commodities and energy were largely anchored reflecting weak demand", Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank said.

The inflation, based on Consumer Price Index and closely monitored by the RBI for its monetary policy action, has come within the central bank's tolerance limit of 2-6 per cent for the first time since the outbreak of the Covid-19 pandemic. Industrial output grew 4.19% in October, higher than the 3.6% quick estimate.

Buoyed by higher gasoline prices, the broader CPI advanced 0.4 per cent from a month earlier and 1.4 per cent from December 2019.

RBI closely observes retail inflation figures to determine key policy rates.


Sugar and confectionary prices increased only 0,53 per cent in December, whereas spices got costlier by 10.29 per cent. Inflation in non-alcoholic beverages was recorded at 11.86 per cent and that in prepared meals, snacks, sweets, etc. touched 4.81 per cent.

US consumer prices increased in December, with households paying more for gasoline, though underlying inflation remained tame as the economy battled a raging COVID-19 pandemic, which has weighed on the labor market and the services industry. "The unevenness and fragility of the current recovery is evident with only 10 out of 23 industry group showing positive growth in November", he pointed out.

"CPI inflation has been above RBI's upper bound inflation target of 4 +/-2 per cent for more than 11 months". An accompanying moderation in the inflation rates for meat and fish, eggs and pulses, helped the consumer food price index record its slowest pace of increase in 16 months at 3.4%.

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